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Symantec Plunges 13% in Two Weeks: What's Pulling it Down?

It has been nearly two weeks that Symantec Corporation SYMC reported second-quarter fiscal 2018 results. Ever since Symantec reported its quarterly numbers on Nov 1, the company’s shares have lost more than 13%.

The downtrend stemmed from the company’s dismal second-quarter results wherein its top and bottom line both fell short of the respective Zacks Consensus Estimate. Furthermore, revenues were in line with the mid-point of the company’s guidance range, while non-GAAP earnings came in at the lower end.

In addition to this, the cybersecurity company issued disappointing guidance for the next quarter’s revenues and earnings, as both fell short of the respective consensus estimates. Moreover, the company’s dismal outlook for the full fiscal makes investors worried about its near-term performance.

Notably, Symantec has underperformed the industry to which it belongs to in the year-to-date period. The stock has returned 17.1%, while the industry recorded growth of 36.1% during the same time frame.

Unfavorable Estimate Revisions

Following Symantec’s dismal performance, the Zacks Consensus Estimate witnessed a downtrend as analysts decreased their estimates. Analysts polled by Zacks are convinced that this Zacks Rank #4 (Sell) stock may witness a lackluster performance in the future as well. Over the past 30 days, the Consensus Estimate for the third quarter and fiscal 2018 moved down by 6 cents and 11 cents, respectively.

What’s Bothering Analysts?

Analysts covering the stock are cautious about Symantec’s future performance due to the factors highlighted by management during the fiscal second-quarter earnings conference call. The company noted that its booking mix is shifting faster than expected toward more ratable revenue recognition, which resulted in lower-than-expected revenue growth in the quarter.

Per Symantec, “Adoption of our Integrated Cyber Defense platform is leading to an increase in the number of larger and multi-product deals, which is a strong validation that customers are designing Symantec into their future security architectures. These trends are however also affecting our in-period revenue recognition. The mix of our bookings is shifting towards more ratable revenue recognition as customers are increasingly adopting our cloud, subscription and virtual appliance products in multi-product deals.”

The company expects the aforementioned factors will continue to impact its near-term results. Therefore, it lowered its revenues and non-GAAP earnings outlook for fiscal 2018.

Looking ahead

Apart from the booking mix issue, there is another factor which makes us increasingly cautious about Symantec’s near-term performance. It should be noted that last month the company announced accomplishing the sale of its Website Security and related PKI business to privately owned DigiCert Inc. This move is believed to be Symantec’s effort to end the ongoing dispute with Alphabet’s GOOGL Google, which has accused it for mis-issuing over 30,000 of web certifications.

However, we believe that although the sale of the company’s certified authority business will avoid conflicts with Alphabet, the loss of high-margin business might hurt Symantec’s near-term profitability.

Therefore, we suggest investors to stay away from investing in this stock till we find a better visibility on the company’s growth opportunities.

Stocks to Consider

Some better-ranked stocks in the same industry space are Blackbaud, Inc. BLKB and Cadence Design Systems, Inc. CDNS, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS growth rates for Blackbaud and Cadence Design are 15.9% and 12%, respectively.

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