Earnings Scorecard: Symantec - Analyst Blog

Since Symantec Corporation (SYMC) reported third quarter fiscal 2011 results on February 25, there have been minimal estimate revisions by the analysts covering the stock.

Third Quarter Highlights

Symantec Corporation reported third quarter earnings per share (EPS) of 17 cents, falling well below the Zacks Consensus Estimate of 30 cents. This was also well below the EPS of 37 cents recorded in third quarter fiscal 2010.

The company reported GAAP revenue of $1.604 billion, up 4% from $1.548 billion reported in the year-ago quarter. The increase in revenue may be attributed to stability in the Storage Management business and strength in the company's Consumer, Backup and Data Loss Prevention businesses.

Revenue increased across all geographic segments of Symantec. The company reported double-digit revenue increase in the Americas and Asia were partially offset by the decline in Europe.

The company generated $460 million cash flow from operating activities, up 17% year over year. It exited the quarter with cash, cash equivalents and short-term investments of $2.45 billion, up from $2.26 billion in the previous quarter.

The company provided decent fourth quarter guidance, with revenue expected to increase 4–5% to $1.585–$1.605 billion. GAAP diluted EPS is estimated between 15 cents and 16 cents, while non-GAAP diluted EPS is estimated between 35 cents and 36 cents.

Agreement of Analysts

Over the last 30 days, 5 of the 12 analysts covering the stock have raised their estimates for the fourth quarter, while 2 analysts made downward revisions. The analysts also revised their fiscal 2011 estimates over the last 30 days, with 6 of the 13 raising estimates, and one moving in the opposite direction.

The Internet security market is growing steadily and offers significant opportunity. According to estimates provided by the market research firm IDC, the network security market is expected to return to pre-recession growth levels this year.

The global network security market, described as hardware and software with functionality (includes segments such as firewalls, VPNs, intrusion prevention and detection) and multi-purpose security known as unified threat management, are expected to generate revenues of $8.16 billion in 2011. Since the company serves these segments, we expect market conditions to be conducive to revenue growth in 2011.

Some analysts believe that the company has suffered from slow revenues and bookings growth in recent years and do not expect the trend to change meaningfully in the near term.

On the other hand, they believe that the market is underestimating FY12 revenue and EPS growth even after considering the contribution from VeriSign's (VRSN) Identity and Authentication business that was acquired last year and the company's expectations of a better economic enviornment.

Magnitude

The fourth quarter Zacks Consensus EPS Estimate has moved up to 33 cents, just 1 cent above the EPS estimated 30 days ago. For fiscal 2011, the Zacks Consensus EPS Estimate has moved up to $1.26, up 1 cent estimated 30 days ago.

Our Recommendation

Symantec delivered mixed third quarter results and provided a decent fourth quarter fiscal 2011 outlook. The company's strong product portfolio, growth prospects in all its served markets, acquisitions, customer win momentum and strong cash generation ability are positives.

On the other hand, we are concerned about intense competition that the company faces from big and small players like McAfee Inc. (MFE), as well as hardware and software manufacturers entering the IT security business. Moreover, the security offered by the new Microsoft (MSFT) Windows operating system also poses some challenges.

The company has a Zacks #3 Rank (short-term Hold recommendation).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/