Symantec Corp. (NASDAQ: SYMC) largely ignored an analyst downgrade from Friday, likely due to the S&P 500 having gained 20 points on the heels of a strong jobs number. The independent research firm Argus downgraded Argus to Hold from Buy on Friday.
The firm’s take is that Symantec has been in turnaround mode for some time. Honestly, that is an understatement when it comes to Symantec. Still, Argus sees it being more important that Symantec likely will need to work through transition issues over the next year or more.
What also stands out here is that the report said point blank that Symantec shares are substantially lagging the market in 2015, but do not appear cheap on a forward basis. The firm lowered its long-term growth rate forecast to 5% from 8%.
On the Veritas disposition, Argus said:
While management’s decision to sell the Veritas business was better, in our view, than its original plan for a spinout and IPO, we remain concerned about execution in the company’s core Enterprise and Consumer security businesses… We are lowering our Fiscal Year 2016 EPS forecast to $1.34 from $1.84 and our Fiscal Year 2017 forecast to $1.06 from $1.97.
An additional note was shown here:
As Symantec has been mired in management, execution, and divestiture issues, competitors have moved ahead with innovative integrated network security offerings. Still, Symantec has a solid set of assets and will get a nice $6 billion cash infusion from the Veritas sale. Our questions relate mainly to execution. How fast can Symantec innovate? How long will it take to become competitive again? And how will it deploy its strong balance sheet, likely through M&A? We note that the “internet of things” provides another avenue for attacks on customer data and an emerging opportunity for Symantec and its competitors.
On the valuation front, Argus said:
Symantec shares have traded between $19 and $27 over the past year and are currently near the bottom of the range. Symantec is down 21% year-to-date, compared to a 3% total return for the S&P. Symantec shares are trading near the low end of their five-year historical average range for enterprise value/sales (1.9 versus a range of 1.8-2.2) though slightly above the high end for enterprise value/EBITDA (9.0, versus a range of 7.3-8.9). Symantec’s forward enterprise value/EBITDA multiple of 8.6 is 19% below the peer average, less than the average discount of 40% over the past two years.
Symantec largely ignored the downgrade. Argus offers truly independent research that is conflict-free, unlike many brokerage firm analysts that have investment banking relationships via underwriting and advisory operations to companies. Unfortunately, its research is not widely distributed, so much of the public never sees it. Many investors also do not even know the firm at all.
Symantec shares were last seen up 11% at $19.93 late Friday morning. The consensus analyst price target is $23.25 and the 52-week range is $19.07 to $27.32.
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