For Symantec, The Equifax Breach Bump May Be Overdone

Cowen downgraded shares of Symantec Corporation SYMC Monday based on the rationale that the 11-percent spike in the company's shares since last month's disclosure of Equifax Inc. EFX breach is overdone.

Equifax was at the receiving end in September, when it was revealed that sensitive personal information of about 143 million American consumers could have been exposed in a data breach that lasted from mid-May through July.

Additionally, Cowen noted that organic growth at Symantec has been sluggish and that valuation of the company's shares is no longer cheap, although it did suggest that it could become rich post the pending web security sale. Also, the firm believes next-gen endpoint vendors are gaining traction.

At this point in time, the firm recommended that investors look elsewhere.

The rating on the shares of Symantec goes from Market Perform to Underperform, with the price target for the shares at $31.

In pre-market trading, shares of Symantec were down 3.27 percent to $32.81.

Justification For Downgrade

Analysts Gregg Moskowitz, Michael Romanelli and Matthew Broome noted that Equifax breach has benefited a number of security vendors, including Symantec's LifeLock. The analysts pointed to a Bloomberg report, which said LifeLock signed up over 100,000 new members in a few days, with most customers willing to pay for premium SKUs.

The analysts expect Symantec will add about 25,000 incremental LifeLock customers due to the Equifax breach at an ASP of about $15 per month.

However, going by recent history, Cowen said consumers' sense of urgency with respect to security purchases is short-lived, especially at high price points. Therefore, the firm believes sign-on activity for LifeLock likely moderated and it does not see the spike in activity as sustainable going forward.

In light of these, the firm thinks it is difficult to justify the $2.2 billion of the incremental market cap for an estimated $60 million in annualized billings.

The firm also said the recent results from Symantec have been mixed, showing sluggish organic growth. Specifically, the firm noted that enterprise security revenues declined 2 percent year over year organically in the fiscal year first quarter, while consumer security grew a mere 1–3 percent organically.

The firm thinks upside to these segments' growth forecast look achievable but challenging. Meanwhile, the firm noted that the company has guided for acceleration in organic growth in 2019–2020. For this to occur, the firm said significant cross-sell and upsell for both Blue Coat and LifeLock are required, which it feels is less likely.

"Separately, checks indicate the leading next-gen endpoint vendors are gaining real traction in the marketplace, which could negatively impact SYMC's growth next year," the firm added.