Top trader Mike Murphy of Rosecliff Capital thinks a recent deal could unlock a whole lot of value in Tyco.
As you may remember, late last year Tyco said it planned to split itself into 3 independent companies - ADT North America residential security, flow-control products and services, and its fire and commercial security business.
Circumstances advanced this week, with Tyco announcing that Pentair will absorb Tyco’s flow control business for $4.6 billion.
"The combined company will have increased scale, broader geographic reach and greater access to high-growth attractive sectors," including energy, Pentair Chief Executive Randall Hogan said on a conference call. He added that he expects the combined company to earn more than $5 per share by 2015.
On the news Pentair shares soared 19 percent to $47.85, a fresh lifetime high.
“The deal really shows there’s a lot of underlying value in the (Tyco) companies,” says trader Murphy. “And (as a result of the Pentair deal) I think there will be a renewed focus on the value of these companies.”
Murphy has crunched the numbers behind the thesis and tell us, “I think Tyco can move into the $70 range. Although flow is out of the picture, the security business and the fire business both have great underlying growth stories – and are both strong acquisition targets.”