Tepid Guidance, Investigation Eclipse Symantec Earnings
While we'll be tracking news of the investigation, our long-term outlook for the firm is currently unchanged.
Symantec (SYMC) reported its fourth-quarter and full-year earnings for fiscal 2018, which modestly exceeded our expectations. However, the release was plagued by Symantec’s middling guidance for the ensuing fiscal year, coupled with news that the Audit Committee Investigation of the Board of Directors is investigating Symantec. Full-year 2019 revenue guidance of $4.83 billion at the midpoint and $1.58 in non-GAAP EPS were both a touch lower than we expected. However, looking long term, our views on Symantec are unchanged and we are reiterating our $26 fair value estimate and no-moat rating for the firm.
In terms of the audit investigation, limited disclosure was given in the press release and management did little to quell concerns on the earnings call. It was initially indicated that the investigation is in connection with concerns raised by a former employee and that the Audit Committee of the Board of Directors has sought independent counsel and contacted the SEC that the investigation was proceeding. In addition to the press release, management indicated that the investigation will delay the release of the firm’s 10-K. We will be closely tracking any news of the investigation over the coming weeks to see if it materially impacts our long-term thesis.
In terms of the earnings, we were impressed by the robustness in the Consumer segment, arguably aided by the acquisition of LifeLock, and we would hypothesize that LifeLock benefitted from the Equifax scandal. In terms of Enterprise, the results this quarter and guidance for the next year were modestly below expectations. The assets acquired through the Blue Coat acquisitions are largely low-margin but expected to be high growth. However, enterprise revenue declined 7% for the quarter, although this was impacted by the Web Security and PKI divesture to Digicert.
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William Fitzsimmons does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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