We are initiating coverage on Symantec Corporation (SYMC) with a Neutral rating and a price target of $18.00, representing a P/E multiple of 12.9x our 2010 EPS estimate. We believe Symantec Corp. is fairly valued at its current P/E multiple of 12.6x our 2010 EPS estimate of $1.39, which is a substantial discount to the industry average. Historically, the stock has traded in a 5-year trailing twelve month P/E range of 9.5x to 27.5x, and we expect the company to trade in the same range going forward.
Symantec delivered decent third-quarter results with non-GAAP revenue of $1.551 billion, up 1% from $1.535 billion reported in the year-ago quarter. The sequential improvement in revenue can be attributed to the good momentum in the consumer business, improvements in the company’s license revenue and stabilization of maintenance revenues. The company’s third-quarter EPS of $0.40 exceeded the Zacks Consensus Estimate of $0.33.
Symantec provided decent guidance for the fourth quarter and expects non-GAAP revenue in the range of $1.510 billion to $1.525 billion, diluted earnings per share between $0.36 and $0.37, and deferred revenue in the range of $3.175 billion to $3.205 billion.
Symantec is undoubtedly the leader in the Internet security market. According to the research firm Gartner, the company remains the overall security market leader, with just about double the market share of McAfee, its closest competitor. Symantec has an even bigger lead in the consumer market, with a 52.0% share and $1.8 billion in revenue last year, compared with 18.0% market share and $624 million in revenue for McAfee.
A host of smaller players, like Trend Micro, CA and Kasperskey Lab, are out there in the field. However, we believe that the company’s portfolio of compelling solutions, aggressive marketing strategy as well as the revival in IT spending will enable it to continue growing its market share. On the other hand, we are a bit concerned about the company’s high debt balance and enhanced level of security offered by Windows 7, which may pose some challenges going forward.
Cupertino, California-based Symantec was founded in 1982, and has operations in more than 40 countries. Symantec offers a wide range of application and software products for firewall, virtual private network (VPN), virus protection, vulnerability management, intrusion detection and security services. The company has organized its business and offers products under various segments, such as Consumer, Security and Compliance, Storage and Server Management and Services.
“SYMC” Free Stock Analysis: Buy? Sell? Hold?
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