Bernstein On Why Tyco Shares Are A Buy

• Tyco International plc (Ireland) Ordinary Share TYC shares are down 30 percent in the last one year, and are trading near their 52-week low of $29.94.
• Bernstein’s Steven E. Winoker maintained an Outperform rating for the company, with a price target of $41.
• Tyco’s stock has been unfairly punished even when the company’s exposure to energy and commodity is not as high as the cyclicals, Winoker stated.

Analyst Steven E Winoker mentioned that Tyco’s shares have declined 36 percent from their peak level of $46 in mid-2014. He wrote, “The stock has behaved (and been punished) like the deep cyclicals, even though it does not have the significant energy / commodity exposure (<10% in total) that the true deep cyclicals do.”
Winoker pointed out that although Tyco is not immune to macro headwinds, it has a defensive portfolio exposed to generally favorable markets like commercial construction with high service revenue content. “TYC has indeed exhibited one of the lowest volatility profiles for organic revenue and segment profit growth over the past 3 years.”
Tyco expects growth to trough in 1Q with orders and comp driven improvement in 2H leading to flat to 2 percent organic growth for the full year. The analyst noted that “while TYC has been 2H-weighted historically, we expect that the company will need a larger 2H pickup to get to the midpoint of its FY16 organic growth target (~1%).”
Tyco’s strength lies in its ability to maintain robust EPS growth during periods of difficult end market conditions. “The company is still on pace to put up one of the fastest EPS growth rates across our coverage in 2016 (~20%), though much of this is due to the step-down in restructuring next year,” the Bernstein report noted.