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Tyco Electronics (NYSE:TEL), spun off from Tyco International (NYSE:TYC) last year, has made good use of its freedom to restructure operations and grow profits. Barron's thinks investors haven't given the company enough credit yet and its Friday close of $27.39 leaves much room for upward growth.

Since gaining independence in mid-2007, Tyco Electronics has bought back $1B of stock (with authorization to repurchase another $1B), boosted operating efficiencies, and focused in on the high-potential automotive and industrial end markets in Asia, Europe and, to a lesser extent, the U.S. If the company continues to improve efficiency as expected, earnings per share could reach $3.60 by 2010 vs. the expected $2.91/share for fiscal year 2009. Tyco Electronics insiders are positive on the stock, with insiders, including CEO Thomas Lynch, buying a total of $4B of shares over the last year.

Investors have been wary on concerns about the effect of weaker consumer spending on computers, electronics, appliances and especially automobiles. In the latest quarter, however, the company's automotive unit posted a 6% gain in total revenue, with growth in Asia and Europe more than offsetting an 18% decline in the U.S. market. Part of the growth in profits is thanks to Lynch's focus on expanding margins from 12.5% last year to 14.1% today, and with a target of 15% by 2010. Tyco Electronics also plans to continue divesting low-margin businesses, with sales of up to $400M by mid-2009.

  • Peter Bates, of T. Rowe Price, says, "You have a low risk of losing money, and you could make 50% in 12 to 18 months," and see the stock rising to the high-40s.

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  • Tyco Electronics (TEL): FQ3 EPS of $0.70 beats by $0.03. Revenue of $3.91B (+19.7%) vs. $3.8B. [PR]
  • In the last week, Tyco Electronics raised its quarterly dividend 14%, to $0.16 per common share vs. $0.14. CEO Thomas Lynch said, "This dividend increase reflects our solid results since separation and the company's strong financial position."
Source: Tyco Electronics Ready to Take Off - Barron's