Are Analysts Blowing Out Symantec at or Near the Bottom?

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Symantec Corp. (NASDAQ: SYMC) was trading handily lower early Thursday after a difficult earnings report. The problem in interpreting the real outlook is that Symantec shares initially opened down about 3.3%, only to see its shares fight back to breakeven morning and even up for the day.

Symantec reported its fiscal third-quarter financial results after the markets closed on Wednesday. The company said that it had earnings of $0.49 per share on $1.21 billion in revenue, compared with consensus estimates from Thomson Reuters of $0.44 per share in earnings and $1.26 billion in revenue. Looking ahead, Symantec now expects to see earnings in the range of $0.37 to $0.41 per share and revenues between $1.175 billion and $1.205 billion. This fell short of the Thomson Reuters consensus estimates of $0.50 per share and $1.26 billion.

Symantec’s mixed earnings report should not have been a surprise to those readers who track the 24/7 Wall St. daily analyst upgrades and downgrades. The stock had seen several downgrades or lowered price targets, with Credit Suisse cutting its rating to Neutral and Jefferies dropping its rating to Underperform in January. Over the past month, more than 10 analysts ticked their estimates lower ahead of earnings.

24/7 Wall St. tracked some of the analyst calls on Symantec. Most of these came with lower price targets, but some firms are still not entirely throwing in the towel here.

There is a serious scenario to consider in Symantec, and it’s one that would be very contrarian in thought. Symantec had traded lower ahead of earnings after multiple downgrades and target cuts. Then after earnings, its shares gapped down after even more cuts in the price targets. As the stock managed to climb all the way back up to being positive on the day, perhaps the analysts have grown more cautious than the investing community’s actual investment dollars are acting.

Oppenheimer has an Outperform rating but lowered its target to $31 from $33. In early November, Oppenheimer lowered Symantec’s price target to $33 from $35. The firm has now noted that Symantec had solid consumer numbers along with soft enterprise numbers, and its product mix shifting to more of a subscription model glitched its revenues. As for the Outperform rating, Oppenheimer views Symantec as well positioned to benefit from the adoption of big data and the ongoing spending by enterprises to protect their valuable business data. The firm also applied a multiple of 15.5 times its own 2020 earnings per share estimate of $2.00 to reach its $31 price target.

Barclays maintained its Overweight rating, but the firm lowered its target price to $34 from $36.

Other firms had premium price targets as well, and their new targets are lower but still above the current share price. Morgan Stanley (Equal Weight) lowered its target to $31 from $33. UBS (Neutral) lowered its target to $30 from $32.

And several firms are now more or less in line or under the current share price: Cowen lowered its target price to $26 from $27, and Stifel lowered its own target to $26 from $27. Susquehanna lowered its price target on Symantec to $28 from $32‍, and Robert W. Baird cut its price target to $28 from $32.

Merrill Lynch maintained its Underperform rating, and while this is a “sell rating” equivalent at other firms, the firm did raise its price objective to $21 from $19 in the call. Merrill Lynch’s investment rationale says:

Given $1.25 billion in free cash flow in fiscal year 2020, post the sale of the Web security business, we consider that the stock should be trading in line with its peers at around 15-times, not at premium. The shift to ratable revenues introduces uncertainty to long-term margins while the security market is seeing increased competition.

Symantec was last seen trading up 1.3% at $27.58, up from an opening price of $26.35 (down 3.3%). Its 52-week range is $25.65 to $34.20, and its consensus analyst target price from Thomson Reuters was at $31.65 prior to earnings but was above $32 at the start of 2018, and it was above $33 at the start of last November. That consensus target price was then down at $30.54 so far after the target cuts have been incorporated.