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Tyco has come a long way
Former CEO Dennis Kozlowski's troubles aren't over. But the stock has put all that behind it.
September 29, 2003: 12:23 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

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MENLO PARK, Calif. (CNN/Money) - More than a year ago, following Enron's collapse and when Tyco was on the ropes, I argued that there was one major difference between the two companies. Tyco, I wrote, has real businesses.

With a broad array of fire and security products, electronic components and more, the conclusion was clear: There was upside to Tyco's stock (TYC: Research, Estimates), at $11 a share.

Check out what's happened to Tyco in the interim. There have been restatements, ongoing investigations and shareholder lawsuits. Next week, dethroned CEO Dennis Kozlowski takes the stand in his criminal trial.

And yet Thursday, the stock traded above $21, a level it hasn't seen since before the bottom fell out last year.

Why the recovery and where's it going?

The gradual restoration of the stock rests largely on the shoulders of Tyco's new CEO, Ed Breen, and his new and improved management team.

Wall Street's assumption is that Breen won't be paying much attention to Kozlowski's trial. It's none of his business.

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As fund manager John Boland of NL Capital Management told Dow Jones, "Ed Breen has done a very good job of absolutely severing all ties to the past and distancing the firm from the personalities."

Then there is the more conservative approach to business Tyco has been taking.

A key example has been pushing out the length of time the company's ADT security alarm business takes before recognizing revenues. The new approach is more consistent with the business. Although it depresses revenues in the short term, it increases investor confidence in the long term.

Of course, the spouse who's been repeatedly cheated on doesn't forget easily, and shares will likely always get a taint discount. Even so, Tyco's collection of assets still seem undervalued.

Even after applying a 15 percent discount, Smith Barney analyst Jeffrey Sprague, a Tyco bull, estimates a value of $25 a share. (Smith Barney or a Citigroup affiliate has done investment banking for Tyco in the past year; Sprague does not personally own Tyco shares.)

Similarly, analyst Aaron Skloff at Pittsburg Research thinks Tyco will generate so much cash flow over the next three years that it will generate an additional 23 cents per share in earnings, just by reducing interest expenses. His price target also is $25.

Tyco isn't out of the woods, even as a jury decides if its former CEO should stay out of jail. But the House that Dennis Built is looking increasingly like a reasonable collection of businesses that justifies its not-so-pricey stock.

Follow-up Part I: Kodak

I suggested here in June that Kodak's (EK: Research, Estimates), last moment has passed it by and predicted we'd be focusing less on the photography pioneer in the future.

Thursday Kodak made its bid to prove me wrong by announcing its dive into the digital-photography deep end.

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Kodak won't invest more in old-fashioned film, instead focusing (no pun intended) on printing and other imaging-related products. Wall Street's not excited about the $2 billion that Kodak will need to spend on those initiatives.

And if any value investors had been thrilled by Kodak's fat dividend yield -- 6.6 percent before Thursday -- let Kodak's cutting of its dividend be a reminder: High yields often spell trouble. They aren't guaranteed, like a certificate of deposit.

Follow-up Part II: Dell

I fingered Dell the other day as one of the bad boys of the computer and electronics industries. Thursday, Michael Dell showed off his cockiness in a masterful press conference to announce Dell's new consumer electronics products.

Dell said it will unveil a music store, a media center (combined TV/PC product) and flat-panel televisions. It gave specifics on none of these but taunted its competitors that it was coming after them. Do you think Apple, HP and Sony are afraid? They ought to be.


Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.