Symantec Corporation SYMC is on the brink of substantial growth in operating profit and EPS post Blue Coat acquisition, a move that would boost the company's earnings to about $2 a share by FY19, according to a note from BTIG.
Symantec has agreed to pay about $4.65 billion in cash to Blue Coat, which is the market leader in the secure web gateway segment with more than 25 percent share.
Analyst Joel Fishbein, who has upgraded Symantec to Buy with a $23 price target, said the acquisition "should almost immediately" bring back growth in the enterprise security business, while providing an expanded product portfolio and addressable market.
"We believe the initial $150 million in cost synergies and FY18 EPS guidance of $1.75 are conservative, and that there is enough operational leverage in the pro forma entity to achieve ~$2.00 in EPS by FY19," Fishbein wrote in a note.
Fishbein said Blue Coat's secure web gateway product is set for a refresh cycle that should hit its stride by CY18. The deal offers meaningful cross-selling opportunities. Further, Blue Coat provides strong operating leverage as it receives two-thirds of its revenue from subscription.
In addition, Blue Coat's recent acquisitions — Perspecsys and Elastica — in the Cloud Access Security Brokers (CASB) should benefit Symantec, as that market is expected to see an incremental $1.4 billion in security spending over the next half decade.
Fishbein also highlighted that new CEO Greg Clark is "a proven operator with deep industry expertise, and we think the right fit to lead the new SYMC."
The analyst recalled that Clark stepped into Blue Coat in 2011 and grew operating margins from about 15 percent to greater than 26.5 percent by the time it was acquired.
Fishbein also raised FY18 EPS estimate to $1.72 (vs. Street $1.39) and FY19 EPS to $2.01 (vs. Street $1.51).
At the time of writing, shares of Symantec were up 1.63 percent to $19.30.
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