Notably, Symantec has been clocking solid returns and in the year-to-date period it has gained approximately 29.4%, outperforming 21.3% growth recorded by the industry it belongs to.
Symantec Corporation Price, Consensus and EPS Surprise | Symantec Corporation Quote
Balance Sheet & Cash Flow
Symantec exited the quarter with cash, cash equivalents and short-term investments of $2.306 billion compared with $4.247 billion last quarter. The company repaid $2 billion of its debt during the quarter, as a result of which its cash, cash equivalents and short-term investments declined sequentially. Long-term debt (including current portion) came down to $6.202 billion from $8.186 billion at the end of the previous quarter.
During the quarter, Symantec generated operating cash flow of $213 million. In addition, it paid $66 million as dividend during the period.
Guidance
Beating its own guidance range at every point made the company optimistic about its solid prospects and therefore, it raised its fiscal 2018 revenue and non-GAAP earnings outlook. For the fiscal, Symantec now expects GAAP revenues in the range of $5.037–$5.137 billion (mid-point $5.087 billion) and non-GAAP revenues in the range of $5,160–$5,260 billion (mid-point $5.210 billion), up from the previous guidance ranges of $4.977–$5.077 billion (mid-point $5.02 billion) and $5,100–$5,200 billion (mid-point $5.150 billion), respectively. The Zacks Consensus Estimate for the fiscal is pegged at $5.15 billion.
Non-GAAP earnings per share are now projected to come between $1.79 and $1.89, up from the earlier forecast of $1.75–$1.85. However, forecast for non-GAAP operating margin has been reiterated at 36–37%.
The company initiated guidance for the second quarter as well. For the quarter, Symantec anticipates GAAP and non-GAAP revenues in the range of $1.225–$1.255 billion (mid-point $1.24 billion) and $1.260–$1.290 billion (mid-point $1.275 billion), respectively. The Zacks Consensus Estimate is pegged at $1.26 billion.
Non-GAAP operating margin is projected in the range of 34–36%. However, on a GAAP basis it expects to report negative operating margin in the range of 2–4%. Further, management predicts reporting loss between 11 cents and 15 cents on a GAAP basis for the fiscal second quarter. However, on a non-GAAP basis, it estimates earnings between 40 cents and 44 cents.
Divestment of Website Security Business
In a separate news release, Symantec announced that privately owned DigiCert Inc. has agreed to buy its Website Security business for $950 million in cash and approximately a 30% stake in the latter’s business. Symantec’s Website Security solution verifies the identity of websites.
We believe that the recent move is an effort by Symantec to end the ongoing dispute with Alphabet’s (GOOGL) Google which has accused it for mis-issuing over 30,000 of web certifications.
Our Take
Symantec reported mixed first-quarter results, wherein the bottom line came ahead of our expectations, while the top line missed the same. However, the company has surpassed its own expectation at every point, which makes us confident that its turnaround efforts are in the right direction. Also, the impressive third-quarter guidance and upbeat fiscal 2018 outlook make us optimistic about its growth opportunities.
Going ahead, the prospects of cybersecurity companies look bright as the recent global hackings, like WannaCry and Petya, have started to adversely affect the top- and bottom-line results of various organizations like Mondelez, FedEx and Merck & Co. The silver lining in this entire episode will be the rise in demand for security-related products among companies and governments, in our opinion.
We believe that this could bring Symantec back into the limelight. Moreover, the recent deal to acquire Israel-based Fireglass will further strengthen Symantec’s leadership position in Secure Web Gateway and Email protection, both delivered on premises and in the cloud.
Also, investment in growth areas such as Enterprise Backup, Storage Management and Security businesses are likely to boost Symantec’s long-term prospects. Additionally, restructuring initiatives and synergies from acquisitions are likely to support the company’s bottom line.
Nonetheless, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from the likes of Microsoft MSFT, remain headwinds.
Currently, Symantec sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other stocks in the same industry space are Red Hat, Inc. RHT and Verint Systems VRNT, both flaunting a Zacks Rank #1.
Red Hat and Verint Systems have long-term expected earnings growth rates of 14.4% and 8.5%, respectively.
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