Seeking Alpha: Can Tyco Break Out Of A Persistent Lagging Trend?

For a company that is supposed to be in one of the more attractive industrial markets, fire and security, Tyco (NYSE:TYC) hasn't lived up to investor expectations. With weaker than average growth and margins, Tyco has been lagging other fire/security players like Honeywell (NYSE:HON), United Technologies (NYSE:UTX), Stanley Black & Decker (NYSE:SWK), and Allegion (NYSE:ALLE) for some time, not to mention the market as a whole (as measured by the S&P 500).

Can the company reverse this unimpressive trend? I can't immediately think of another company in this size range with as much exposure to the non-residential construction market (though Ingersoll-Rand (NYSE:IR) is close), both here and abroad, and perhaps the protracted lull in that market explains some of Tyco's underpeformance. That said, management needs to address what seems to be an elevated level of corporate expenses and a relatively bad track record of meeting projections.

I don't see a large amount of undervaluation here, but this is a significant "self help" story where outperformance on margins can have a disproportionate benefit on the valuation. It's also arguably still at a size where a larger conglomerate could consider it an acquisition target, particularly with the prospect of rooting out the company's elevated cost structure.

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Can Tyco Break Out Of A Persistent Lagging Trend?

Seeking Alpha: With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?

Like the roads around most major cities, the construction of a large industrial conglomerate is never finished. United Technologies (NYSE:UTX) is now strongly leveraged to the expected growth in commercial aerospace over the next decade, but the Building and Industrial Systems segment has suffered in comparison. Like most industrial conglomerates, United Technologies doesn't look like a tremendous bargain at today's levels, but I wouldn't underestimate the potential of a value-bidding deal in the next 12 to 18 months.

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With Aerospace Squared Away, Will United Technologies Go Back To Big Deals?

Seeking Alpha: Stanley Black & Decker Doesn't Inspire Yet

Arguably still best known as a power tools and hand tools company, Stanley Black & Decker (SWK) has spent considerable sums on M&A in the name of diversification. Thus far these deals haven't meaningfully helped the company's returns on capital nor its free cash flow generation, due in no small part to ongoing challenges with its Security business. Although Stanley Black & Decker doesn't look unreasonably valued relative to EBITDA and it has significant self-improvement potential, the shares already price in a lot of cash flow-based improvement.

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Stanley Black & Decker Doesn't Inspire Yet

Investopedia: Ingersoll-Rand Improving, But Are Investors Already Too Optimistic?

I will say right from the beginning that I haven't been a fan of Ingersoll-Rand (NYSE:IR) for some time now. While the involvement of activist investors and a commitment to launch debt-funded share buybacks has helped the stock significantly since October of 2011, the next leg of improvement is going to have to come from better execution. This is where I'm not sure the company can deliver, and where I fear investors have given too much of a benefit of the doubt to management. That said, investors who have more faith in management could look to improving construction markets as a driver for the next move in the stock.

Please read the full article here:
http://www.investopedia.com/stock-analysis/050713/ingersollrand-improving-are-investors-already-too-optimistic-ir-utx-jci-lii-tyc.aspx

Investopedia: Will Investors Be Secure With ADT?

On the whole, ADT (NYSE:ADT) has what should be a pretty good business model. Not only does the company have a large chunk of the residential security market, but customers sign multi-year contracts that lead to pretty reliable cash flow streams. Unfortunately, it's not quite that simple. ADT has to pay quite a lot to get those customers, the equipment certainly isn't free, and the accounting is not exactly crystal clear. All in all, it's no slam dunk that investors will feel secure with ADT in their portfolio.

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http://www.investopedia.com/stock-analysis/2012/Will-Investors-Be-Secure-With-ADT-ADT-HON-UTX-TYC1128.aspx

Investopedia: Tyco Makes A Conservative Debut

If Tyco's (NYSE:TYC) first post-split quarter is any indication, this is going to be a conservatively-managed company focused on smart growth and steady operating improvements. Although a global recovery in commercial markets would be a big help, improving cost efficiency and takeout chatter is likely to buoy the stock in the near term.

Closing the Year as Expected 

Although Tyco's fiscal fourth quarter report was pretty messy from a GAAP standpoint (due in part to the split from ADT (NYSE:ADT) and the flow control business (since merging with Pentair (NYSE:PNR)), it was basically in line with expectations.

Read more here:
http://www.investopedia.com/stock-analysis/2012/Tyco-Makes-A-Conservative-Debut-TYC-HON-UTX-SI1116.aspx

Investopedia: Flowserve Looking To Bookings And Margins

It was just the other day that Reuters ran an article highlighting the risk that a building boom in domestic pipelines could be significantly slowed by a shortage of the enormous heavy-duty valves and pumps that such projects require. That sounds like a pretty healthy backdrop for Flowserve (NYSE:FLS) - a veritable pure-play on fluid handling equipment like pumps and valves. The question for Flowserve investors, though, is how much the company can improve its full-cycle margins and how much is already built into the price.

Continue reading here:
http://stocks.investopedia.com/stock-analysis/2012/Flowserve-Looking-To-Bookings-And-Margins-FLS-SPW-TYC-GE0803.aspx

Investopedia: How Much Is Already In The Pipeline With Flowserve?

One of the realities of the stock market that frustrates less experienced investors is that the Street often foresees growth well ahead of its appearance in the financials ... and when it shows up, the stock is already generously priced. That looks to be a risk with Flowserve (NYSE:FLS) these days. While this industrial company is well-positioned to benefit from ongoing capital spending in oil and gas, power and chemicals, to say nothing of future projects in water, the current valuation already presupposes quite a lot of future business.

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http://stocks.investopedia.com/stock-analysis/2012/How-Much-Is-Already-In-The-Pipeline-With-Flowserve-FLS-TYC-EMR-GE0503.aspx

Investopedia: Emerson Is Better Than It Looks

Industrial stocks certainly have their ups and downs as the economy goes through its cycles, but proven names like Danaher (NYSE:DHR), Illinois Tool Works (NYSE:ITW) and Emerson (NYSE:EMR) don't often trade at attractive multiples. With investors worried about Emerson's industrial automation and network power businesses, skeptical of its ability to recoup sales lost to a natural disaster, and generally bothered by any company with heavy exposure to Europe and/or China, now may be the time to fight the tide and consider these shares.

A Bad Quarter Was Expected, but This Was a Little Worse Still  
Emerson warned the Street that this was not going to be a good quarter, and results were still a little shy of even those lowered expectations. Revenue fell 4% on an organic basis, as both network power and climate saw 10% declines in reported sales. Tools revenue was up slightly, but this is a tiny business. Industrial automation was a modest 2%, while process management was down a reported 1%.

Read the full article here:
http://stocks.investopedia.com/stock-analysis/2012/Emerson-Is-Better-Than-It-Looks--EMR-ABB-ROK-HON-SI-UTX-TYC0210.aspx

Investopedia: Is Ingersoll-Rand's Bar Finally Low Enough?

For all the talk of restructurings, initiatives and goals, the reality is that companies generally stay more or less in their historical slots - good companies continue to be good companies and laggards continue to lag. That makes it difficult to have a lot of faith in the idea that Ingersoll-Rand (NYSE:IR) is underpriced and primed to be a solid stock over the long term. Although IR does have some solid businesses, there is just simply no record or habit of outperformance here and investors bet on that at their peril.

Ample Skepticism  
Ingersoll-Rand certainly lives in a tough neighborhood these days, as not only have industrials been weak in general, but those with above-average exposure to areas like construction have had an even tougher go of it. That said, Ingersoll-Rand has still suffered more than most; it's 2011 performance certainly trails the likes of United Technologies (NYSE:UTX), Johnson Controls (NYSE:JCI), Honeywell (NYSE:HON) or Dover (NYSE:DOV).

Read the full piece here:
http://stocks.investopedia.com/stock-analysis/2011/Is-Ingersoll-Rands-Bar-Finally-Low-Enough-IR-UTX-JCI-DOV-DRC-LII-WCC1229.aspx

Investopedia: 2011 In Review - Conglomerates

Conglomerates, virtually by definition, are an unwieldy and heterogeneous lot. Many have their fingers in multiple industry groups, but not necessarily in the same or overlapping categories. Consequently, it's rare to find sector funds or sector performance statistics that have any particular utility. That said, a look at a select list of top conglomerates shows that this was a pretty challenging year for the sector.


Only A Few Winners 
Admittedly there's some selection bias here, as there is no standard definition of a "conglomerate" and many would-be conglomerates are folded into other industrial or financial categories. Nevertheless, it looks like the winners in the conglomerate space were few and far between.


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http://stocks.investopedia.com/stock-analysis/2011/2011-In-Review---Conglomerates-TYC-BRK-A-HIT-PHG1222.aspx

Investopedia: Tyco Goes Three-For-One

Neil Sedaka may have once thought that breaking up was hard to do, but Tyco (NYSE:TYC) apparently has no such problems. Though rumors had started to creep out a few days ago, Tyco announced Monday morning that it was undertaking a significant corporate reorganization that would effectively result in splitting up the company's three main businesses into independent publicly-traded entities.

The New Tycos to Come 

After setting Tyco Electronics (NYSE:TEL) and Covidien (NYSE:COV) free in 2006, Tyco has been operating as a three-pronged business entity. There is the ADT security business, a flow control business that sells valves, controls, actuators and the like to industries including power, water, and chemicals, and a commercial fire and safety business.

Now the company is going to undertake a year-long process of restructuring and tax-free spin-offs (technically conducted as stock dividends) that will result in the three companies operating and trading as free-standing independent entities. As part of the process, the company expects to incur something on the order of $700 million in expenses. (For related reading, see Parents And Spinoffs: When To Buy And When To Sell.)

Read more through the link below:
http://stocks.investopedia.com/stock-analysis/2011/Tyco-Goes-Three-For-One-TYC-COV-SI-UTX-HON-ABB-EMR0921.aspx

Investopedia: Pall May Be Offering An Entry Point

Looking at the results of companies in the broadly-defined filtration business, for example companies like Donaldson (NYSE:DCI) and Clarcor (NYSE:CLC), it may be tempting to decide that the run in industrial filtration is over and it is time to move on to other ideas. In the case of Pall (NYSE:PLL), though, that may not be the wisest long-term move. While Pall is certainly not performing at peak potential, the opportunities that seem to be left in the company and stock make it a worthy consideration for a long-term investor.

A Tough End to the Year  
Pall pre-announced a disappointing fourth quarter result, so the market has already had a chance to digest the news and punish the stock accordingly. Pall reported that revenue rose 15% on a reported basis, with constant currency sales growth of about 6%. Growth was led by the life sciences business, with 8% constant currency growth. This segment is slightly more than half of the company's total sales. On the industrial side, growth was a more modest 5% (again on a constant currency basis).

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http://stocks.investopedia.com/stock-analysis/2011/Pall-May-Be-Offering-An-Entry-Point-PLL-DCI-CLC-BA-GE-TYC0919.aspx

Investopedia: Diverse Markets Boosting Dover

So far this has been a solid quarter for a wide range of industrial conglomerates. Investors can add Dover (NYSE:DOV) to this list, as ongoing strength in markets like materials handling, fluid management, microphones, and frequency control products are helping this relatively small industrial conglomerate post very attractive revenue and order growth. 

An All Around Solid Second Quarter  
Arguably the worst that can be said about Dover's second quarter performance is that it did not beat the analyst estimates by a huge amount. Nevertheless, the company reported 21% top line growth, 14% organic revenue growth, and order growth of 15%. 


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http://stocks.investopedia.com/stock-analysis/2011/Diverse-Markets-Boosting-Dover-DOV-GDI-FLS-ETN-ABB-OSK-SI0729.aspx

Investopedia: United Technologies Finds Some Turbulence

High expectations are great for a stock when the company delivers and shareholders see nice gains in their portfolio. The trouble with high expectations (and high valuations) is that the market is quick to punish what would otherwise be a solid performance. That would seem to be the biggest risk for United Technologies (NYSE:UTX) these days, as the company continues to sport both solid performance and a healthy valuation. 

The Quarter That Was  
Though there were some hiccups, United Technologies reported an all-around solid quarter (and one where revenue exceeded expectations). Revenue rose more than 9% as reported, with 6% organic growth. Top-line growth was led by the Otis business, while Hamilton Sunstrand and Carrier were close behind. Pratt & Whitney and Sikorsky were the laggards this quarter, but both still posted better than 5% revenue growth. 



To read the full piece:
United Technologies Finds Some Turbulence (UTX, BA, GE, GR, SI)

Jabil's Good News May Be Fleeting

Jabil Circuits (NYSE:JBL) is a very nice property in a really rough neighborhood. Unfortunately, being among the best electronics manufacturing services provider is a little like being the tallest Oompa Loompa - it is nice on a relative basis, but not so impressive outside its own industry. The fact is, the EMS industry is brutally competitive and price sensitive, and it is difficult to see how Jabil can sustain enough of an economic advantage to allow the stock to really do well over the long haul. 

A Solid Quarter To Start The Fiscal Year 
Jabil does deserve credit for producing solid results in this first fiscal quarter. Revenue rose 32% from last year and 6% on a sequential basis. As investors might imagine, the performance of a company like Jabil is always going to fall somewhere between that of its best-performing customers (like Research In Motion (Nasdaq:RIMM)) and its lagging customers (like Cisco (Nasdaq:CSCO)).

Diving a little deeper, revenue growth was strongest in the high-velocity systems business, which serves customers like RIMM, Hewlett-Packard (NYSE:HPQ) and Nokia (NYSE:NOK). Growth was also quite strong in the diversified manufacturing services segment (which serves customers like Tyco (NYSE:TYC)), where the "specialized" business more than made up for lagging performance in industrial/clean-tech and healthcare/instrumentation. Enterprise and infrastructure, which includes Cisco, was the laggard this time around. 


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http://stocks.investopedia.com/stock-analysis/2010/Jabils-Good-News-May-Be-Fleeting-JBL-FLEX-SANM-CSCO-RIMM-APH-TYC1223.aspx

Cintas Not Scintillating

These are lousy times to be in the business of providing services to business. Whether you look at payroll and HR service companies like Paychex (Nasdaq:PAYX) and ADP (NYSE:ADP), staffing companies like Manpower (NYSE:MAN), or sanitation service providers like Ecolab (NYSE:ECL), the combination of stagnant employment and cost-cutting has been a headache for almost every player. As the leader provider of uniform rentals in North America, Cintas (Nasdaq:CTAS) is likewise caught up in that malaise. 

The Quarter That Was
All things considered, Cintas likely made the best of a difficult situation in the company's fiscal first quarter. Overall revenue growth exceeded 3%, with organic revenue growth of just under that figure. Although core uniform rental revenue was barely positive, at least it was positive, unlike the negative organic revenue performance in the prior quarter. On the other hand, the company did see solid double-digit growth in both uniform sales and document management.

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http://stocks.investopedia.com/stock-analysis/2010/Cintas-Not-Scintillating-CTAS-PAYX-ADP-MAN-ECL-IRM-TYC0922.aspx

Dover Does Diversification

As a former equity research analyst, I do not usually have much sympathy for my peers. A notable exception, though, is when I look at companies like Dover (NYSE: DOV) - I really do not envy the analysts who have to try to monitor the myriad markets in which this industrial and technological conglomerate operates.

Fortunately, though, everything seems to be working out right now. With tendrils reaching into so many corners of the economy, Dover could still prove to be a solid play on the overall economic recovery that will come sooner or later. 



For the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Dover-Does-Diversification-DOV-DHR-GE-TYC-BRK.A0726.aspx

3M - Do You Believe?

3M (NYSE: MMM) has been a pretty good stock for me over the last five or so years, giving me an incremental 25%+ return relative to the S&P 500. What attracted me to the stock initially, and what remains a centerpiece of my thesis, is the nebula of doubt that seems to hover around this stock - although the stock is now a consensus "buy" by the analysts, a lot of people seem to just be waiting for 3M to slide back to its old self and be a serial underperformer again.

3M's second quarter results were pretty solid, as the company pre-announced that they would be.

Revenue was up 18% yoy and up about 6% sequentially. All of the company's operating segments grew - with Display/Graphics and Electro/Comm each growing more than 30% and Consumer/Office and Health Care both growing less than 6%. Overseas growth was robust in Lat-Am and China.

The one point of concern? Pricing was down about 0.6% as the company acknowledged cutting prices in some cases to maintain market share. I am not really sure what, if anything, to make of this - a sign of oncoming deflation? A sign of competitors getting desperate? A sign of 3M falling behind in product positioning? Or a sign that 3M's cost structure is getting better and the company can afford to cut prices?

Although I am a little nervous about whether the company can keep pricing in Display/Graphics from falling off, none of this really worries me today. That is mostly because of the company's market share in films - they are far ahead of the likes of Tyco (NYSE: TYC) and Nitto-Denko.

Profitability was pretty good as well. Gross margins were flat (not bad considering rising input costs) and operating margin ticked up a bit. Importantly, all of the company's units posted operating margins above 20%. In other words, there really are not any "problem children" in the mix right now.

The big debate on 3M is whether or not the "new 3M" is real and sustainable. Company management has put out bold targets - moving organic revenue growth from a traditional level of 3-4% to 7-8% a year. For a company of 3M's size, that is no simple feat. Management seems serious, though, and has moved to change company culture (much as I hate that term/concept) and invest in both R&D and advertisting.


If the skeptics are right, we are probably close to seeing peak margins from 3M, and the company will then start to suffer from flagging growth and sagging margins - a one-two punch that will not be pleasant. On the other hand, if the believers are right, this is just the beginning of a new, more dynamic, 3M.

Right now, I am a cautious believer. I do believe that 3M has restructured itself and has a very real chance of boosting both margins and cash flow, but top-line growth as well (in the 6% range, perhaps). The company has footholds in numerous attractive growth markets and I would frankly like to see them spend even more on R&D.

Assuming roughly 6% top-line growth for the next five years and a gradual improvement in cash flow margins, I think the shares are worth $100. A bad-case scenario, 4% revenue growth and a decline back to the 10-yr average cash flow margin, puts a down-side valuation of about $75 for the shares.

$100 is not enough, perhaps, to recommend purchase, but it is enough for me to stay on board as a shareholder.

Disclosure - I own shares of 3M.