Bear of the Day: Symantec

Some new tech trends, like artificial intelligence and autonomous driving, promise massive growth in the future. Others, like cybersecurity, are in demand right now. Nevertheless, not every cybersecurity firm has been witnessed consistent success. Today’s “Bear of the Day” is one of the struggling stocks in this industry, Symantec Corporation (SYMC - Free Report).

Symantec is one of the world’s largest cybersecurity firms. The company’s Norton brand is a major player on the consumer security side of things, while its enterprise offerings are used by a number of businesses around the world.

A few months ago, Symantec shares plummeted after the company reported dismal results and lowered its outlook. Now, as we approach Symantec’s fiscal third-quarter earnings report date, the stock is once again looking risky. The stock is currently holding a Zacks Rank #5 (Strong Sell).

Latest Earnings and Outlook

Symantec reported its second-quarter fiscal 2018 earnings on Nov. 1. On a non-GAAP basis, the company generated revenues of $1.276 billion, up 26% year-over-year but below our consensus estimate of $1.278 billion. Meanwhile, non-GAAP earnings of 40 cents per share missed our consensus estimate by three cents.

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. Considering this effect, Symantec now expects non-GAAP revenues in the range of $1.250 - $1.280 billion. Further, management predicts earnings between 42 cents and 46 cents for the third quarter.

Analysts have put their projections right in the middle of these ranges. Our current consensus estimates are calling for the company to report earnings of 44 cents per share and revenues of $1.26 billion. These results would represent year-over-year growth of 37.5% and 21.5%, respectively. Those growth rates may seem exciting, but considering the company’s recent acquisition activity, this expansion—particularly on the revenue side—is likely to disappoint many investors.

Key Metrics

Despite a slump that has seen the stock lose about 17% over the past 12 weeks, Symantec shares are still trading at 25x earnings and nearly 4x sales. These figures are not horrible for a tech company, but considering that you are not exactly buying in at a moment of strength, we can hardly consider the company a great value option.

Meanwhile, we have seen analyst sentiment cool even further as we approach the company’s earnings report date. One way to gauge this is looking at the Zacks Earnings ESP figure. Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

Right now, SYMC has an Earnings ESP of -1.38%. This means that the most recent estimates are below the consensus estimate. That type of analyst activity in the days closest to the report is not a good sign.