Wall Street Weighs In On Symantec-Broadcom Deal

Broadcom Inc AVGO shares were trading higher Friday after the company announced a $10.7-billion buyout of the enterprise business of Symantec Corporation SYMC.

A deal between the two tech giants had been rumored for weeks, and the combination should lead to significant cost synergies for Broadcom. Broadcom’s enterprise security business generates about $2 billion in annual revenue, and the company is anticipating $1 billion in synergies in the first year after the deal’s closing.

Several analysts weighed in on the acquisition Friday. 

Positive For Symantec

UBS analyst Fatima Boolani said the remaining Symantec consumer security software business will have low-single digit growth and stable 50% margins.

“We're skeptical on the anticipated growth acceleration from recent flattish levels and mixed trends in direct customer adds of late, along with the overall dynamics of price elasticity/freemium competition in the end-market, but acknowledge greater focus and more surgical reinvestments — as SYMC is now unencumbered from financing distracting enterprise GTM initiatives — are positive biases towards execution,” the analyst said. 

Wedbush analyst Daniel Ives said the deal is a major positive for Symantec.

“Overall this is a great outcome for SYMC shareholders that have been through a few ups and many downs with this name since the ill-fated acquisition of Veritas in 2005,” he said. 

Cash Flow Boost For Broadcom

When it comes to Broadcom, Boolani said the deal is in-line with Broadcom’s strategy of acquiring sources of cash flow and returning half to shareholders via dividends.

“While investor opinion of the SYMC asset does not appear to be high, it significantly expands AVGO's software TAM and very much fits with its model of buying sticky enterprise assets with bloated cost structures,” she said. 

KeyBanc Capital Markets analyst John Vinh said Broadcom investors should keep their revenue synergy expectations tempered.

“However, we are constructive on the deal, as it remains consistent with the AVGO consolidation playbook of acquiring highly profitable businesses that are mature in consolidated sectors with a sticky customer base,” he said. 

Ratings, Price Targets

• UBS has a Neutral rating and $23 price target for Symantec and a Buy rating and $310 price target for Broadcom.
• Wedbush has a Neutral rating on Symantec with a price target lifted from $19 to $25.
• KeyBanc has an Overweight rating on Broadcom with a price target lifted from $310 to $330.

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