Special Situation Investing

Sunday, August 13, 2006

Tyco (TYC) Share Repurchases

Tyco released it's third quarter results last week. To summarize the financial numbers, revenue was up 5.1%, and net income fell from $.56 per share to $.42 per share of which 6 cents was attributed to 1-time charges. Tyco is made up of four divisions, all but the fire and security division saw operating income decreases despite generally posting higher revenue. Overall I thought that the numbers were somewhat concerning given their trend but their is too little data at this point to make a case that the company is in long-term decline. However the valuation still seems reasonable at ~$25.50 per share, and an estimated forward P/E of 12.38.

The company is undertaking large scale share buybacks as seen in their 10-Q. During the past 9 months Tyco has repurchased 71 million shares for $1.9 Billion, or about 3.5% of outstanding shares. They also state in the report their intention to continue to repurchase shares and have $1.3 Billion remaining in their current share repurchase program. In spite of the capital allocated for share repurchases, Net Tangible Assets have increased by $1.9 billion over the past 9 months.

I originally posted about the Tyco (TYC) split up here.


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