Takeover Target Shows Low-Risk Set-Up

09/20/2011 9:00 am EST


Joe Donohue

Co-Founder, Desert Shores Capital LP

A restructuring and lingering M&A rumors for Tyco International (TYC) could push the shares higher, and with strong moving average support close by, a risk-controlled entry point is being presented.

Tyco International Ltd. (TYC) is set to be split into three different companies. The Swiss-based conglomerate plans to separate its security, fire protection, and flow-control segments into three publicly traded companies.

The stock has been in a two-month consolidation since it dropped from the $45-$50 level back in June. It caught some nice buy-side volume last week, and on Friday, it broke above the 50-day moving average on substantial volume. Gee, wonder if someone knew about the announcement early?

The stock is currently just above its 200-day moving average resistance, but a move that remains there could mean a move to $48 and then $50. Stops can be placed in the $44 area.

Click to Enlarge

Background Information

Tyco provides security products and services, fire protection and detection products and services, valves and controls, and other industrial products worldwide.

The company’s Tyco Security Solutions segment designs, sells, installs, services, and monitors electronic security, productivity, and lifestyle enhancement systems for residential, commercial, industrial, and government customers. This segment also designs, manufactures, and sells security products, including intrusion, security, access control, electronic article surveillance, and video management systems.

Its Tyco Fire Protection segment designs, manufactures, sells, installs, and services fire detection and fire suppression systems, and building and life safety products for commercial, industrial, and government customers.

The Fundamental Picture

The company’s last earnings report on July 28 beat estimates on the top and bottom lines, but that wasn’t enough to prevent it from skidding along with the broader market. It has also been considered a potential takeover target at the hands of France’s Schneider Electric.

That rumor has since been squashed, but late last week there was a report that United Technologies (UTX) is said to be preparing approximately $420 billion worth of financing towards a large acquisition. You may remember TYC received some play earlier in the year as a possible UTX acquisition target.

By Joe Donohue of Upside Trader.com

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