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A Company Searching for New Guidance
Posted by: James Miller Phd (IP Logged)
Date: April 3, 2014 09:56PM
Symantec Corp. (SYMC), is an American company based in Mountain View, Calif. Its main businesses are computer security, backup and availability software solutions. It is a member of the S&P stock index, and a Fortune 500 company. Also, the most used certificate authority according to W3Techs.
It is leader in its main businesses and provider for all of the Fortune 500 companies. However, it’s been poorly managed in the past years, having a succession of CEOs that resulted in the departure, last Thursday, of -now former- CEO Steve Bennett. This left the company with an interim CEO and in need of good leadership. Lately, the company hasn’t been moving aggressively enough in a highly competitive industry, lacking good acquisitions to incorporate new technology. In spite of that, the company’s products still remain desirable on the consumer level. And, Symantec is constantly searching for upselling opportunities for its other businesses, such as mobile and other services. It also has emerging security offerings in the mobile management, data loss prevention software, and cloud solutions software segments, which certainly contribute to the company’s growth. Furthermore, geographic expansion and the company’s cheap and easy to use products are expected to continue to attract customers.
Symantec’s moat comes from high customer switching costs, associated with its enterprise storage and security solutions, a large installed base, and its high recurring revenue. The costs of retraining staff and potential risk of system stoppage, make customers resilient to change to another competitor. The large installed base previously mentioned, provides the company with high recurring revenue. In fact, most of the company’s revenue is recurring, approximately 78% of it. This factors contribute to fund development of new and emerging businesses, and also on much needed R&D in a highly competitive industry. With a high quality record on software and update releases, the company ensures to maintain this large base of customers and of course gain new ones. Lastly, protecting more than one billion systems, safeguarding over 135 million consumers with Norton security product and having all of the 500 Fortune companies as customers also provides the company with a broad advantage over its competitors.
Last Thursday, after Bennett’s departure, Mike Brown took the position of interim CEO, while the company searches for a new one. Though the company was a voracious acquirer in the past, lately it hasn’t spent much resources on M&A. And it doesn’t seem it will do any acquiring in the near future, but it should start integrating the technology acquired in previous M&A. On the other hand, R&D budget is maintained at a fair percentage of 15% of the revenue. And this looks like a good R&D policy, since the company needs to stay competitive against important competitors such as, AVG, Microsoft, Avast, Nod32, amongst other industry giants. Additionally, and consequently with the company’s stock repurchasing policies, the board recently approved a $1 billion share repurchases for fiscal 2014 (before it spent as much as $900 million repurchasing stock).
Overall Metrics and View for the Future
Looking at the company’s metrics we can see that, despite the stock’s price is near a year low of $18.20, its dividend yield is reaching a year high of 3.19 (marking also a best in the company’s history).
Its OP Margin its times 16.26, 10.46 points above the industry median and one of the bests in the company’s history. Its Net Margin at 11.08, ROE at 14.11 and ROC at 100.09, are all also above the median and bests against Symantec’s history. Overall, it looks like a good company to invest in, but it is to be seen whether the company can find a new, efficient CEO that can lead the company into a nice direction. And what will be announced at the analyst day in May in terms of strategic focus.
Disclosure: James Miller holds no position in any stocks mentioned.
Stocks Discussed: SYMC,
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