Symantec's Stellar Q3 Fails To Pull Analysts From The Sidelines

Security software vendor Symantec Corporation SYMC reported forecast-beating third-quarter results and raised its enterprise security revenue as well as EPS guidance for 2019. The company also announced the departure of its CFO.

The Analysts

• Wedbush analyst Daniel Ives maintained a Neutral rating on Symantec and increased the price target from $21 to $24.
• Morgan Stanley analyst Keith Weiss kept an Equal-weight rating and $23 price target.
• UBS analyst Fatima Boolani maintained a Neutral rating and increased the price target from $21 to $24.

Symantec shares were trading up 11.2 percent to $23.37 at time of publication Friday.

Wedbush: Symantec Is Getting Its Mojo Back

Symantec's Blue Coat acquisition and expanded product footprint is helping to kickstart enterprise growth in a big way, Ives said in a Friday note. The analyst attributed the enterprise performance to improved execution, facilitated by the integration of salesforce with pent up installed base demand and the threat environment forcing the installed base to sign contracts.

After last year's audit investigation and tough sales environment, Symantec is getting its mojo back, as evidenced by billings and sales guidance, Ives said.

With a PE buyout being speculated, the analyst sees the potential price in the $26-$30 range. However, the solid third-quarter performance should put any M&A talk on hold.

Wedbush stays on sidelines until it gets further comfort "this execution story is sustainable for the next 12 months," but raised the price target on improved traction in the field and billings trajectory into 2020.

Morgan Stanley Awaits More Confidence In Underlying Demand Trends

A return to organic growth by Symantec's enterprise security business, better-than-expected operating margins and operating cash flow were the highlights of the quarter, Weiss said.

Delving deep, however, the analyst highlighted some issues with the enterprise security revenues: higher revenues recognized upfront, the bulk of the upside accounted for by the 3 percent positive impact of ASC 606 impacts and organic growth at the segment being down 4 percent on a constant currency basis.

The stock, according to Morgan Stanley, is valued at just 12 times its estimated EPS for CY20, incorporating little expectation of a return to durable growth in the stock.

"[H]owever we await more confidence in the underlying demand trends at Symantec before getting more aggressive on the shares," Weiss wrote.

UBS: We Find it Hard To See P/E Expand

The overall recovery heading into the seasonally strong fourth quarter is encouraging but the upside looks temporal, Boolani said.

The fluid nature of the recovery along with the 9 percent year-to-date declines in enterprise billings and limited evidence of pricing leverage do not adequately defend Symantec's guidance for a return to mid-single digit growth in 2020, the analyst added.

"With little change to forward op income growth, continued risk to rev growth/margin expansion ramp, and a CFO in transition, we find it hard to see P/E expand despite double-digit EPS growth outlook," Bollani wrote.

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