Tyco International (TYC) posted 56 cents third-quarter earnings per share (GAAP basis) and cut its outlook. Wachovia downgraded the stock to market perform.
Analyst Wendy Caplan says the downgrade is based on lower-than-expected EPS growth. She notes the company now sees 45 cents to 47 cents fourth-quarter EPS, and $1.85-$1.87 for fiscal year 2005 (September).
More importantly, she says Tyco essentially lowered its all-important free cash flow expectations for fiscal year 2005 to $4.2 billion to $4.6 billion. She cuts her $1.92 fiscal year 2005 EPS estimate to $1.86, and $2.30 fiscal year 2006 forecast to $2.05.
Caplan concludes that until earning trends improve, she believes the shares could perform in line with the S&P 500; hence at yesterday's close, she views the stock as fairly valued.