Symantec Shares Slump on Split News, Outlook Repeated - Analyst Blog

Shares of Symantec Corporation (SYMC) went down 2.4% on Thursday’s trading session. The slump came after the security software provider confirmed the separation of its information management business from its consumer and enterprise software security businesses into two publicly listed companies. The entire process is expected to be completed by the end of fiscal 2015.

Post split, Symantec will operate as two separate entities – the security business and the information management (“IM”) business. The confirmation came two weeks after the company appointed its interim CEO Michael A. Brown as the new full-time CEO after a six-month search.

The decline in share prices was also attributable to Moody’s Investors Service – the credit rating arm of Moody’s Corp. (MCO) – which has placed the ratings of Symantec on review for a possible downgrade. The rating agency believes the latest split will reverse the benefits of the $13.5 billion Veritas Software acquisition, which was closed way back in 2005.

Our Viewpoint

Despite yesterday’s drop, strong demand for Symantec’s cyber security solutions and its adoption of new products are expected to pull the company out of trouble. In fact, the separation comes at an opportune moment for Symantec as the initiative aims at streamlining its operations and maximizing shareholder’s value. This strategic move will also likely be beneficial for the company in reviving its operational performance.

On one hand, adoption of the company’s offerings in the security market has been strong over the past couple of years. On the other, the company, serving 75% of the Fortune 500, enjoys a leading position in the IM business.

Therefore, strength in the individual businesses make them more attractive as acquisition targets for companies like Hewlett-Packard Company (HPQ), Cisco Systems, Inc. and NetApp, Inc.

Even if this doesn’t happen, the split enables a customized approach to the two different kinds of businesses, which might not have been possible as a single entity.

Moreover, the separation of businesses is a rational choice. Sales of Symantec’s security solutions have been considerably affected by the shrinking PC market, which has taken a big hit and is not expected to recover in the next 2–3 years.

To counter this decline, Symantec has shifted its focus to the mobile business, which will enable it to generate additional volumes.

The company has realigned its organizational framework by eliminating several mid-level management positions to create a leaner operating structure. It also outlined a go-to-market strategy, which involves reorganization of its sales force into specialized groups to look after functional areas of security and information management.

Symantec’s Prospects

Despite the ongoing restructuring measures, the company reiterated its fiscal 2015 revenue guidance of $6.63–$6.77 billion (mid-point $6.7 billion). The Zacks Consensus Estimate is pegged at $6.72 billion. On the other hand, the company’s fiscal 2015 non-GAAP earnings per share are expected to increase on a year-over-year basis in the range of $1.84–$1.92 (mid-point $1.88) despite the imminent split at the end of the fiscal year. The Zacks Consensus Estimate is pegged at $1.69.

Through introduction of enhanced versions of storage management and Internet security solutions, Symantec is making an effort to attract small and mid-sized businesses. These solutions are primarily targeted at information-driven businesses. However, competition from other bellwethers such as Microsoft Corporation (MSFT) and Intel remain headwinds. Also, uncertainty over PC sales adds to its woes.

Currently, Symantec has a Zacks Rank #3 (Hold).

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