Symantec's Internal Investigation: The Sell-Side Reacts

Cybersecurity provider Symantec Corporation SYMC disclosed in conjunction with its fourth-quarter report Thursday that an audit committee is investigating concerns raised by a former employee.

William Blair: Too Soon To Judge

Symantec's Q4 report was "healthy" but overshadowed by a surprise announcement of an internal investigation, analyst Jonathan Ho said in a Friday note. The audit committee is in contact with the U.S. Securities Exchange Commission on a voluntary basis, which could imply that Symantec's 10-K regulatory filing won't be released in a timely manner, the analyst said. 

The company offered no details related to the investigation aside from confirmation it has hired outside counsel and other advisors, Ho said. While it is too early to reach any conclusions, it could  be reasonable to assume at this time that the investigation is not related to a breach of the company or its products — and to assume financial results will be subject to change, he said. 

Aside from the investigation announcement, Symantec's concerning 2019 guidance is "compounding the issue," Ho said. Symantec's  guidance came in "well below" consensus estimates and implies the enterprise business will decline on a year-over-year basis, according to William Blair. 

Symantec's stock reaction to the downside is an appropriate action amid concerns related to the investigation and poor guidance, Ho said. 

William Blair maintained a Market Perform rating on Symantec.

Credit Suisse: 'Unusual' Situation

Symantec's announcement of an investigation into "whistleblower claims"  is unusual and concerning, analyst Brad Zelnick said in a note. Investors could expect to see downside in the stock to $18 per share based on a 12x multiple on guided fiscal 2019 free cash flow, he said. 

Aside from the investigation announcement, Symantec's 2019 guidance signals customers are opting for cloud-based products, which doesn't bode well for companies like Symantec, the analyst said. Investors may want to consider Outperform-rated Zscaler Inc ZS, Zelnick said. 

Credit Suisse maintained a Neutral rating on Symantec with a price target lowered from $30 to $26.

Cowen: 'Serious Matter' 

Cowen analysts were quoted by Reuters as saying in a research report that Symantec's investigation could "amount to nothing." In the meantime, it is "undoubtedly a serious matter," and it will take time for investor confidence to improve, according to Cowen.  

Morgan Stanley: Why No Questions?

Morgan Stanley's Keith Weiss was also quoted by Reuters as questioning why Symantec's management didn't field any questions on any topic from the Street in its post-earnings conference call. While it's understandable for questions related to litigation or investigations to be off-limit, "we've never seen a company cut off any Q&A on any topic from analysts or investors," Weiss said. 

Price Action

Symantec shares were down 34.37 percent at the time of publication Friday at $19.10, below the 52-week low of $24.93.

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