By Matt Doiron
Symantec Corporation (SYMC) announced good earnings numbers for its second quarter, beating analyst expectations by reporting 43 cents per share of earnings (analyst consensus had been for 38 cents per share). The Internet security and data storage company's results were slightly down from the same quarter in 2011, though revenue was up slightly. More good news for investors came when CEO Enrique Salem left his position; Salem had been considered an obstacle to Symantec's business prospects. The stock has since risen over $3 and closed on August 2nd at $16.31 per share. For the year, it is up a little over 3%, underperforming the broader market.
Stephen Bennett, Chairman of the company's board and the new CEO of Symantec (Bennett served as the CEO of Intuit for several years, leaving in 2007), expressed his confidence in the company by buying 89,300 shares at an average price of $15.75 on July 31st. The shares were purchased through a trust to bring the trust's total holdings to nearly 140,000 shares. This, plus the fact that the purchase amount comes to over $1.4 million make the insider purchase significant.
Insider purchases are considered bullish signs because of the forgone benefits of diversification. By owning shares in the company from which he derives his income, Bennett is taking a risk that its business prospects will decline and reduce both his income and his wealth. Therefore, in order for him to purchase shares, he must have enough confidence in Symantec to overcome these risks. Bennett's buy is a welcome sign for insider trading watchers, as a number of insiders had sold shares of the company in early June when the stock was trading at about $14.30 per share; the stock had then fallen until the positive quarterly report came in.
On a segment basis, Symantec Corporation's Consumer and Storage & Server business units reported flat revenues compared to the same quarter of the previous year, while overall revenue growth was powered by a 7% increase in sales within Security & Compliance (the company's third largest business segment behind the other two). Operating income was also flat within the Consumer Unit and up in Security & Compliance, with the Storage & Server segment incurring a lower margin than last year's first quarter and therefore a fall in operating income. On a geographic basis, revenue declines in EMEA were offset by growth in Asia and low growth in North America.
International Value Advisers, a long-term value fund managed by Charles De Vaulx, owned 5 million shares of Symantec at the end of March. Robert Zoellner's Alpine Associates held 2.6 million shares, a position that they do not seem to have changed since the summer of 2011. D.E. Shaw also reported an ownership position in the stock. Billionaires Glenn Dubin, Israel Englander, and Ray Dalio are also among the Symantec shareholders.
Symantec isn't much of a growth stock, but it does have a value case going for it at a trailing price-to-earnings multiple of 10. Symantec is the leader among publicly-traded security companies, with McAfee being acquired by Intel Corporation (INTC) in 2011. Intel is obviously a larger, more diversified technology company, which for purposes of comparison trades at 11 times trailing earnings. Intel too struggled in its most recent quarter compared to its results a year ago. Intel does pay a 3.5% dividend yield due to its more mature and cash-generating businesses.
Security-focused peers include the smaller Check Point Software Technologies (CHKP) and Sourcefire (FIRE). These companies trade at trailing P/E multiples of 17 and 179 respectively, the theory being that they have more growth ahead of them than Symantec. In its last quarter, Check Point increased earnings by 17% compared to a year ago, narrowly beating earnings for the fourth quarter in a row. Sourcefire has also been growing, but its forward multiple is still 45. We like Symantec's valuation compared to its peers and like its new CEO's confidence in the company.