John Linehan, portfolio manager of the the T. Rowe Price Equity Income Fund, sold out his remaining -6,740,104 shares of Tyco International (TYC, Financial) for an average price of $46.27 per share during the third quarter. The trade had a -1.42% impact on the portfolio.
Tyco International was organized under the laws of Switzerland. The company was created as a result of the July 1997 acquisition of Tyco International Ltd., a Massachusetts corporation, by ADT Limited, a public company organized under the laws of Bermuda, at which time ADT Limited changed its name to Tyco International Ltd. Tyco International is a leading provider of security products and services, fire detection and suppression products and services and life safety products. The company’s portfolio of products and services are sold under the brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, Scott and ADT. The company operates and reports financial and operating information in three segments: North America Integrated Solutions & Services, Rest of World and Global Product Designs.
Tyco International has a market cap of $18.62 billion, a price-earnings (P/E) ratio of 38.81, an enterprise value of $20.81 and a price-book (P/B) ratio of 4.47.
According to GuruFocus, Tyco International has a 5 of 10 financial strength rating with a cash to debt ratio of 0.14, an equity to asset ratio of 0.38 and an interest coverage ratio of 10.16. Its Piotroski F-Score of 6 and Altman Z-Score of 3.31 indicate that the company is financially stable and is not in danger of filing for bankruptcy in the near future. The company also has a 7 of 10 profitability and growth rating, with an operating margin of 9.99%, a net-margin of 5.45%, a ROE of 12.64%, a ROA of 4.49% and three-year EBITDA Ă‚ growth of 34.10%.
On May 12 of this year, guru Mario Gabelli (Trades, Portfolio) commented on Tyco International:
"Tyco International plc (NYSE:TYC)(1.0%) (TYC – $36.71 – NYSE), a company built through serial acquisition, spun-off Covidien and Tyco Electronics in June 2007. In September 2012, the company spun-off ADT, its U.S. residential alarm monitoring business, and merged its flow control business into Pentair. Remaining Tyco is a leading global fire/security system manufacturer and service company with significant recurring revenue and international growth opportunities. The company announced in January 2016 that it would merge with Johnson Controls to offer a complete suite of commercial building services. We expect the deal to close by the fourth quarter of 2016."
It is possible that Linehan decided to sell out of Tyco International during the third quarter because the company was close to its 10-year high in price, the company’s revenue has been in long-term decline at an estimated average annual rate of -8% over the previous 15 years, and the company’s gross profit has been in long-term decline at an estimated average annual of rate -8.3% over the previous 15 years. Tyco International’s revenue per share has also been in long-term decline at an average rate of -5.90% over the previous 10 years. The company is trading above its intrinsic value, according to the Peter Lynch chart below. All of these reasons could have contributed to John Linehan's decision to sell out T. Rowe Price Equity Income Fund’s stake in Tyco during the third quarter.
Guru John Linehan began working at T. Rowe Price in 1998. From there, he worked his way up to becoming head of U.S. equity in 2009, and then he was promoted as the portfolio manager of the T. Rowe Price Equity Income Fund at the beginning of November 2015. Before Linehan began working at T. Rowe Price, he graduated with a Bachelor of Arts from Amherst College and he received his Masters of Business Administration from Stanford University. Since its inception in 1986, the T. Rowe Price Equity Income fund has returned an estimated 10.3% profit.
Disclosure: Author does not own any shares of this company.
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