Analysts at Deutsche Bank maintained Buy rating on the shares of Tyco International Ltd. (NYSE: TYC) as the latter sees a continued momentum in ADT Pulse adoption rates that has moved from 14.5 percent in first quarter of 2011 to 15.5 percent in second quarter of FY2011. They set a price target of $56 for the stock.
DB analysts state that the payback period for Pulse is identical to that of traditional security systems. As a result, the IRR will be higher for ADT pulse as compared to traditional security systems over time, guided by potentially lower attrition rate. They state that over the time, adoption rates are expected to increase by 25 to 30 percent. The company’s management believes that in future, ADT Pulse customers are expected to show lower attrition rates than base security system customers. The company states that it will be able to reduce total ADT attrition by 100 to 200 bps to 10 or 11 percent over time. Analysts state that if the firm reduce attrition by 150bps, it would either increase organic growth by 1.5ppts or add $100 million cash per annum due to a reduction in SAC. They state that the firm in new into the integration process and synergies are tracking better-than-expected. They state that costs to achieve synergies have come in slightly below expectations.
On a year-to-date basis, Tyco’s share performance is 12.16 percent, and as compared to Standard & Poor’s 500, the company’s YTD share performance is 10.98 percent.
Tyco International designs and manufactures relays, circuit breakers, fibre optic components and wireless products. It has a market capitalization of $21.80 billion, and P/E ratio of 15.810. It has 468 million outstanding shares.
Shares of Tyco added 0.02 percent or 1 cent to trade at $46.50 in the after-hours trading.
