Tyco Electronics (TEL) is running its business more efficiently now than it has over the past few years. The company has been reducing capacity and cutting costs in an effort to expand profit margins.
Its focus on cutting costs coupled with improving top-line growth is generating impressive operating leverage, which should lead to strong earnings growth for the next few years.
Growth and Income
Analysts estimate that Tyco Electronics will grow its earnings per share 185.3% in fiscal 2010, 14.2% in fiscal 2011, and 13.5% per year for the long term. TEL’s return on equity is 10.5%. And, the stock has a dividend yield of 2.4%.
Tyco Electronics has a Zacks #2 Rank. It trades at 11.3x fiscal 2010 consensus EPS estimates and 10.0x fiscal 2011 consensus EPS estimates.
Business
Tyco Electronics Ltd. provides engineered electronic components, network solutions, specialty products, and undersea telecommunication systems.
Strong Second-Quarter Results
On April 28, Tyco Electronics reported net sales of $2.96 billion, an increase of 27% year-over-year. The company earned $0.64 per share, an increase of 357% from the year-ago quarter. TEL beat the Zacks Consensus Estimate by 12 cents, or 23.1%.
In the last five quarters, Tyco Electronics has beaten the Zacks Consensus Estimate by an average of 52.1%.
Company Guidance
The company expects fiscal third-quarter sales of $3.0 billion to $3.1 Billion, up 20% to 24% compared to the year-ago quarter, and adjusted EPS of $0.61-$0.65, up from $0.17 in the prior-year quarter.
For the full year, the company expects sales of $11.8 billion to $12.0 billion and adjusted EPS of $2.32 to $2.40.
Estimates
The company’s strong second-quarter results and bullish fiscal 2010 guidance prompted analysts to boost their estimates for fiscal years 2010 and 2011. The Zacks Consensus for fiscal 2010 climbed 27 cents, or 16.2%, to $2.37. The Zacks Consensus for fiscal 2011 increased 40 cents, or 17.4%, to $2.70.
Financial Health
The company ended the second quarter with $1.8 billion in cash. During the quarter, Tyco Electronics had operating cash flow of $500 million and free cash flow of $419 million. The company bought back 5.7 million shares for $150 million and has $440 million remaining in its share repurchase program, which it plans to use in this fiscal year.
