NEW YORK (CNN/Money) - When Tyco International was getting trashed in recent months and weeks, value fund managers were the only cranks willing to take a chance on the battered shares.

But on Thursday, buying Tyco was once again the thing to do.

Shares, down more than 80 percent for the year through Wednesday, soared more than 30 percent in late trading on Thursday, on news that the company is moving closer to pulling off the IPO of its financial services division, CIT. Tyco, heavily in debt, badly needs the money the IPO would raise, and there had been fears that the company would not be able to unload the unit.

The company also announced some cost-cutting initiatives, including the closing of several Tyco office buildings and the sale of the company's corporate jets. These actions are expected to save Tyco $125 million a year.

Noted value investors, including Legg Mason Value Trust's Bill Miller and David Dreman of Dreman Value Management, had been bravely buying the stock during its descent. And on Thursday, analysts at Merrill Lynch and J.P. Morgan upgraded the stock.

The appeal to value investors is simple enough: Before Thursday's rally, the stock (TYC: Research, Estimates) had a P/E of just 3.9, based on earnings estimates for this fiscal year. And Tyco, a conglomerate built over the years through dozens of acquisitions, clearly has a group of businesses with real value that it could shed to raise money.

In addition to CIT, the company owns the ADT brand of burglar alarms and home security devices, a medical equipment business and a unit that makes semiconductors, circuits and other electronics components.

But some say that the stock still isn't cheap, given the lingering questions about Tyco's accounting practices and creditworthiness and the problems with former CEO Dennis Kozlowski who last week resigned a day before being indicted by Manhattan's District Attorney for tax evasion.

Perhaps the most worrisome aspect about Tyco, though, is that it could be facing a cash crunch -- even if the CIT IPO goes through. As of March 31, Tyco had $6.3 billion in cash on its balance sheet but also was loaded down with $20.5 billion in debt due within one year and $40.7 billion in long-term debt.

If you take CIT Group out of the picture, Tyco would have $4 billion in cash, $6.7 billion in debt due within 12 months and another $20.7 billion in long-term debt. And despite Thursday's run, the stock could certainly head back down if Tyco doesn't address these balance sheet concerns.

The CIT news Wednesday night calmed those fears. Tyco and the SEC had been in discussions regarding CIT's accounting and there was speculation that those talks could delay the offering, tentatively scheduled for the end of this month. That Tyco filed an amended registration statement for CIT was taken as a sign that the IPO could proceed with no more regulatory roadblocks. Tyco did not return calls seeking comment about its balance sheet and the exact timing of the IPO but CIT's underwriters said on Thursday that the offering would likely take place in early July.

Still, would the CIT IPO be enough? Tyco hopes to raise between $5 billion and $5.8 billion before underwriter's fees (in an earlier filing, it was hoping for $7.1 billion). But on Wednesday, credit rating agency Moody's downgraded Tyco's bonds to junk status. "Even with the anticipated debt reduction from the CIT transaction, the potential risks attendant to the widening array of management and corporate governance issues at Tyco render the company's credit profile inconsistent with an investment grade rating," Moody's said in a statement about the downgrade.

Crit Thomas, director of growth equity for Armada Funds, said that the increased likelihood of a CIT IPO alleviates some fears about liquidity but added that even if the IPO goes ahead without a hitch, he's concerned about whether the company can raise enough money to address its short-term debt obligations. "Tyco is going to try monetize anything they can in order to help them deleverage the balance sheet. I think they will look to outright sell or spin-out a division or two. They are not getting the amount they had originally expected to get out of CIT Group."

Thomas says that two Armada funds that had owned Tyco, the Armada Large Cap Ultra Fund and Armada Equity Growth Fund, sold off their stakes in the company in April when the stock was trading in the low $20s. "We felt kind of stupid when we did it and now we're smiling," he says.

Even if Tyco does unload CIT, there still seem to be rough times ahead. Steven Altman, a fixed income analyst with Commerzbank Securities, says that assuming CIT is sold, Tyco still would have a total of $14.2 billion in debt due by the end of 2003. Commerzbank has been involved in the underwriting of Tyco bond sales.

Altman estimates that Tyco will wind up with proceeds of about $4.5 billion from the CIT IPO and that the company can generate another $4.5 billion in free cash flow between now and the end of next year. Add to that the $4 billion in cash it already has (ex-CIT) and that comes out to only $13 billion.

That's why Altman thinks it is imperative for Tyco to name a new CEO that can negotiate with banks for additional lines of credit. "There's no way between now and the end of 2003 that they can just use the sale of CIT, free cash flow and cash on hand to meet all the potential debt obligations," Altman says. "They need external borrowing."

And although Tyco is still expected to be profitable this year, earnings are expected to decline 8.2 percent from last year and estimates for fiscal 2002 have been lowered by 21 percent in the past three months. Analysts are predicting an earnings increase of just 11 percent in fiscal 2003, far below Tyco's average earnings growth rate of 36 percent for the last five years.

"I guess you'd be a vulture investor if you buy now," says Kent Mergler, manager of the Fremont New Era Growth Fund. Mergler says he sold his stake in Tyco in February.

To be sure, if is history is any guide, Tyco stands a chance of making a comeback. Accounting disasters at Cendant (CD: Research, Estimates) and Waste Management (WMI: Research, Estimates) in the late 1990s were forgiven once the companies came clean and got rid of the executives accountable for their faulty books. Both stocks have been solid performers during the bear market of the last two years with Cendant's stock up more than 30 percent and Waste Management's stock gaining nearly 50 percent.

Mergler thinks that Tyco will wind up like a Cendant and Waste Management and avoid the fate of Enron. But with new allegations of suspect practices by Tyco management coming out on nearly a daily basis (the latest being a Wall Street Journal story that detailed how Tyco paid as much as $2 million annually to a law firm that one of the company's directors worked for) he says it's still too much of a gamble to make a long-term bet on Tyco.

"Assuming the problems are no worse than what we've seen to date, you can make a case for a recovery. But that's a higher risk than we're willing to take," says Mergler.