Know When To Fold 'Em: Symantec Valuation Appears Full

UBS downgraded shares of Symantec Corporation SYMC Thursday, stating that the risk/reward from here is more balanced.

Strong Run Up In Shares

Analyst Fatima Boolani noted that Symantec's shares have nearly doubled over the past year, capitalizing on re-accelerating revenue growth, cost optimization efforts and generous capital allocation.

Source: Y Charts

Mixed Business Performance, Sub-Par Q1 Outlook

UBS noted that the company reported in-line fiscal year fourth-quarter results earlier this month, with consumer business faring well but enterprise suffered due to softer Blue Coat and mix shift to Cloud.

The firm also mentioned fiscal year 2018 first-quarter guidance was below the consensus estimates. Consequently, the stock fell, especially on the implied back-end loaded execution, according to the firm. Additionally, free cash flow generation potential is resurfacing despite the stabilization in organic business.

Notwithstanding the absorption of higher convert-related share dilution, product-to-subscriptions hurting revenues and the higher tax rate, the firm noted that the company raised the fiscal year 2018 earnings per share guidance by $0.05 to $1.75–$1.85.

Constructive View Neutralized

"We remain positive on SYMC's improved product positioning and renewed execution focus, and believe backing by prominent financial sponsors could provide near-term downside protection on the stock, but our cautious view on attainment of implied ~40 percent FY19 OPM on St's $2+ EPS, especially in light of lower share repurchase cadence (refocused on deleveraging), and potential headwinds to the SSL certs (revs leakage/higher costs) and Blue Coat (Cloud shift, slower refresh) segments neutralizes our constructive view," the firm said, offering explanation for its Neutral stance.

UBS believes the consensus' bullish execution view and earnings per share growth expectations appear priced in at current levels. Additionally, the firm added there is limited scope for further multiple expansion.

As such, UBS downgraded the shares of Symantec to Neutral from Buy but lifted its price target to $33 from $31.

Related Links:

PureFunds Talks WannaCry Fallout, Cybersecurity Stocks

New Disney Film May Be In The Hands Of WannaCry Hackers