Tyco Electronics (TEL) shares moving in bullish 'flag' formation

Tyco Electronics (NYSE: TEL) provides engineered electronic components, network devices and telecommunications systems to customers in the automotive, appliance, aerospace, defense, telecom, computer and consumer electronics industries. In all, the firm manufactures approximately 500,000 products. It was one of the two daughter companies formed when Tyco International (NYSE: TYC) separated its electronics and healthcare groups from its core security and engineered products operations.

Tyco Electronics surprised the Street earlier in the month, when it reported fiscal Q4 EPS of 59 cents and revenues of $3.62 billion. Analysts had been expecting 54 cents and $3.43 billion. The CEO noted, "Our strong sales growth was largely due to continued strength in our international markets, which account for more than 60 percent of our sales, along with another very strong quarter in our Undersea Telecommunications business." Management also guided Q1 EPS to 56-58 cents (54 cent consensus), Q1 revenues to $3.53-3.60 million ($3.35B consensus) and FY08 EPS to $2.40-2.50 ($2.35 consensus).

The TEL share price popped through major moving average resistance on the news and has since been defining a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with two "strong buys", three "buys" and eight "holds". Recent price targets have been in the $40-$43 range. The TEL P/E ratio (14.46), PEG ratio (1.26), Price to Sales ratio (1.31) and Price to Book ratio (1.55) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 85% of the outstanding shares. The issue is one of those used to calculate the S&P 500 Index. Since it began trading independently this summer, the stock price has cycled between $31.31 and $40.63. A stop-loss of $30.80 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.