I find Symantec Corporation (NASDAQ:SYMC) stock to be a long-term smart investment. Symantec will continue to benefit from the increasing demand for anti-hacking tools. SYMC's stock has underperformed the market this year and in 2013, however, considering its good valuation metrics and solid earnings growth prospects, the stock, in my opinion, has plenty of room to move up. Furthermore, SYMC's stock is ranked first among all S&P 500 tech stocks, according to Portfolio123's "All-Stars: Zweig" powerful ranking system. In addition, Symantec is generating strong free cash flows and returns value to its shareholders by stock buybacks and dividend payments.
Symantec is the world's largest independent provider of information security products. The company was founded in 1982 and is headquartered in Mountain View, California.
The table below presents the valuation metrics of SYMC, the data were taken from Yahoo Finance and finviz.com.
Symantec's valuation metrics are good. The forward P/E is low at 11.75, and the Enterprise Value/EBITDA ratio is very low at 7.42.
According to James P. O'Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book "What Works on Wall Street," Mr. O'Shaughnessy demonstrates that 46 years back-testing, from 1963 to 2009, have shown that companies with the lowest EV/ EBITDA ratio have given the best return. Mr. O'Shaughnessy explains that EV/ EBITDA is a better way to assess value - that is, how cheap or expensive it is-than looking at the P/E ratio alone. The EV/ EBITDA is neutral to a company's capital structure and capital expenditures. Stocks that have very high debt levels often have low P/E ratios, but this does not necessarily mean that they are cheap in relation to other securities.
Latest Quarter Results
On August 06, Symantec reported its first quarter fiscal year 2015 financial results, which beat EPS expectations by $0.03 (7.14%) and beat on revenues.
Revenue climbed 1.5 percent to $1.74 billion from $1.71 billion in the same quarter a year ago. Net income increased to $236 million, or 34 cents per share, from $157 million, or 22 cents per share, in the same quarter a year ago.
In the report, Michael A. Brown, Symantec interim president and chief executive officer, said:
We are making steady progress against the five priorities outlined last quarter including: optimizing certain businesses for margin, improving efficiencies, attracting top talent, returning significant cash to shareholders and focusing our investments for growth in our enterprise business. These investments are focused in backup appliances, mobile, advanced threat protection, managed security services and data loss prevention.
Dividend and Share Repurchase
Symantec has been paying dividends since June 2013 and has not increased its quarterly payment of $0.15 ever since. The forward annual dividend yield is at 2.50% and the payout ratio is at 46.5%.
Management expects to allocate about $900 million or 90% of free cash flow to dividends and share repurchases this year.
Net cash provided by operating activities was $293 million in the first quarter, and $1,281 million in the fiscal year 2014.
A comparison of key fundamental data between Symantec and its main competitors is shown in the table below.
Symantec has the lowest PEG ratio and the lowest EV/EBITDA ratio among the stocks in the group. However, it has the highest debt and the lowest earnings growth estimates.
Symantec's Margins and Return on Capital parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the tables below.
According to Portfolio123's "All-Stars: Zweig" powerful ranking system SYMC's stock is ranked first among all S&P 500 tech stocks.
The "All-Stars: Zweig" ranking system is quite complex, and it is taking into account many factors like; EPS Growth, Sales Growth, Market Performance and Insider activity, as shown in the Portfolio123's chart below.
Back-testing over 15 years has proved that this ranking system is very useful.
The charts below give some technical analysis information.
The SYMC stock price is 2.50% above its 20-day simple moving average, 6.14% above its 50-day simple moving average and 10.06% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.
Chart: TradeStation Group, Inc.
The weekly MACD histogram, a particularly valuable indicator by technicians, is at 0.3133 and flat, which is a neutral signal (a rising MACD histogram that is crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 60.86 which do not indicate oversold or overbought conditions.
Analysts opinion is divided, among the twenty-five analysts covering the stock, three rate it as a Strong Buy, four rate it as a Buy, sixteen rate it as a Hold, and two analysts rate it as an Underperform.
TipRanks is a website that ranks experts (analysts and bloggers) according to their performance. According to TipRanks, among the analysts covering SYMC stock there are only eight analysts who have the four or five star rating, two of them recommend the stock, four top analyst have a Hold rating on the stock, and two analysts rate it as a Sell.
On July 09, Symantec released a sneak peek at upcoming offerings - Norton Security and Norton Security with Backup. The company explained:
As cybercriminals become more devious and the attacks they launch become more sophisticated, Symantec is overhauling its consumer product portfolio to offer faster performance and stronger, defense-in-depth protection for people and their information as they use Android, Windows, Mac and iOS devices. The pre-release software is now available for free download from the Norton beta website.
Symantec continues to benefit from the increasing demand for anti-hacking tools. According to Gartner, a rise in computer attacks is spurring sales of antivirus programs as more people stay online, with global spending on security software and hardware projected to climb 9.1 percent this year to $71.7 billion.
Symantec has been able to show an earnings per share surprise in each one of the last four quarters, as shown in the table below.
In my opinion, the fact that the company succeeds to beat analyst expectations quarter after quarter demonstrates the strength of its business, and there is a good chance that Symantec will continue to surprise by reporting better than estimate results also in the future.
SYMC's stock has underperformed the market this year and in 2013. Since the start of the year, SYMC's stock has gained only 1.7% while the S&P 500 index has risen 3.3%, and the Nasdaq Composite Index has increased 3.8%. Moreover, since the beginning of 2013, SYMC's stock has gained only 27.4%, while the S&P 500 index has increased 33.9%, and the Nasdaq Composite Index has risen 43.6%. However, considering its good valuation metrics and solid earnings growth prospects, the stock, in my opinion, has plenty of room to move up.
Symantec will continue to benefit from the increasing demand for anti-hacking tools. Symantec has good valuation metrics and solid earnings growth prospects - its EV/EBITDA ratio is very low at 7.42. Furthermore, SYMC's stock is ranked first among all S&P 500 tech stocks, according to Portfolio123's "All-Stars: Zweig" powerful ranking system. Symantec is generating strong free cash flows and returns value to its shareholders by stock buybacks and dividend payments. In fact, Management expects to allocate about $900 million or 90% of free cash flow to dividends and share repurchases this year. All these factors bring me to the conclusion that SYMC's stock is a smart long-term investment.
Disclosure: The author is long SYMC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.