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Key Factors to Decide Symantec's (SYMC) Fate in Q2 Earnings

Symantec Corporation SYMC is slated to release second-quarter fiscal 2018 results on Nov 1.

The current Zacks Consensus Estimate for the quarter under review is pegged at 43 cents, which represents year-over-year growth of 42.2%. We note that the Zacks Consensus Estimate remained unchanged over the past 30 days. Additionally, analysts polled by Zacks project revenues of roughly $1.28 billion, up 30.6% from the year-ago quarter level.

Rise in demand for cybersecurity-related products due to the recent global hacking events, along with acquisitions, are likely to drive Symantec’s fiscal second-quarter overall results. However, divestment of the company’s high-margin certified authority business may undermine profitability.

Symantec Corporation Price and EPS Surprise


Symantec Corporation Price and EPS Surprise | Symantec Corporation Quote

To Benefit From Rising Demand

Cybersecurity companies stand to gain from data breaches as chances of security-related purchases shoot up. The demand for cybersecurity-related products have got fresh momentum by the two back-to-back ransomware attacks — WannaCry or WannaCrypt in May and Petya in June — which created global havoc.

Apart from this, data breach at Equifax Inc. EFX, which was discovered this September, is likely to have a positive impact on cybersecurity-related products’ demand, particularly identity protection security providers. Symantec, which has been enhancing its identity-theft protection capabilities through acquisitions like LifeLock, will surely have cashed on this opportunity.

Acquisitions to Drive Revenues

Symantec has taken the acquisition route to redeem its struggling business. In the last few quarters, the company acquired businesses like Blue Coat, LifeLock, Skycure and Fireglass. The acquisitions have helped Symantec broaden its product portfolio and enhance the company’s capabilities in areas such as identity, mobile and web protection, which is currently a huge concern for almost every sector, be it financials, retail or technology.

The buyouts have helped it reduce its dependency on the PC market and strengthen position in the enterprise security market. It should be noted that the company was facing severe competition from Palo-Alto Networks and FireEye in the enterprise segment market.

Additionally, the acquisitions have broadened Symantec’s customer base. Therefore, we anticipate this strategy to drive the company’s to-be-reported quarters’ revenues and earnings.

Website Security Divestment Might Hurt profitability

During the first-quarter fiscal 2018 results, 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 the latest move is 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, it should be noted that the company’s certified authority business was a very high-margin business. Therefore, we are increasingly cautious that the loss of high margin associated with this business may drag Symantec’s profitability in the near future.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Symantec is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Symantec has an Earnings ESP of +0.78% but carries a Zacks Rank #4 (Sell). Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock With Favorable Combination

As per our model, NVIDIA Corp. NVDA has the right combination of elements to post an earnings beat this quarter. The stock has an Earnings ESP of +0.53% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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