Symantec’s Faces Several Hurdles On Path To Recovery, But The Recent Selloff In Its Stock Looks Overdone

by Trefis Team
-7.37%
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Trefis
SYMC
Symantec
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Symantec (NYSE:SYMC) reported its fiscal Q4 and full year 2019 earnings last week, and the company missed street expectations on revenue while reporting an in-line EPS. Symantec’s sub-par Q4 performance was accompanied by a weak guidance and news of the abrupt departure of its CEO – sending its shares down 15% in post-market trading after results were announced. Although the shares recouped a small part of the losses, we believe that investors over-reacted to the bad news. Per Trefis estimates, Symantec’s shares have a fair value of $21. Our interactive dashboard about Symantec’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Additionally, you will see more Trefis Technology company data here.

A Quick Look At Symantec’s Revenue Sources

Symantec makes money selling cyber-security products, solutions and services to corporates and retail customers. There are two sources of Symantec’s revenue ($4.8 billion in fiscal 2018)

  • Enterprise Security (fiscal 2018 revenue of $2.6 billion, 53% of total): Revenues are derived from the sale of the company’s products offering threat- and information-protection across cloud and on-premise applications to corporate and government customers.
  • Consumer Security (fiscal 2018 revenue of $2.3 billion, 47% of total): Revenues are derived from the sale of products and services including Norton Security, LifeLock Identity Theft Protection and Norton Wi-Fi Privacy to individuals and small businesses.

Symantec added $1.25 billion in total revenues from 2016 to 2018 (CAGR of 16%). Revenue growth over this period was primarily due to a strong showing by the consumer segment, although the enterprise segment’s performance has improved considerably over recent quarters.

Some key takeaways from Q4 include:

  • Consumer Security: Revenues for the segment have witnessed sizable year-on-year declines over the last four quarters, and the trend continued in Q4 with revenues declining to $584 million (-2% y-o-y).
  • Enterprise Security: The Enterprise segment has mitigated the impact of weakness in Symantec’s Consumer business on the top line over recent quarters. However, Q4 revenues for this segment declined to $605 million (-1% y-o-y).
  • The management attributed Q4 declines to a mix of factors including certain technical issues in the company’s cloud product and a loss of business from small and medium enterprises. The interim CEO also highlighted that Symantec’s email protection offering to the enterprise segment has been under-marketed, given that the company’s product can block 98% threats versus an accuracy figure of 35% for the industry standard – Office 365.

In our last earnings note, we had noted that the spate of management exits has been an issue for the company (and its stock) to contend with. The series of management changes are very likely to slow down Symantec’s recovery in the near future. That said, we forecast Symantec’s EPS figure for full-year 2019 to be $0.39. Taken together with our forward P/E multiple of 54x for the company, this works out to a $21 per share price estimate for the company’s stock, which is about 10% ahead of the current market price.

Do not agree with our forecast? Create your own price forecast for the Symantec by changing the base inputs (blue dots) on our interactive dashboard.

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