Symantec Is Better Off Than Its Share Price (ISSX, MFE, SYMC)

Symantec (SYMC) and McAfee (MFE) are the kings of the PC antivirus market. Neither can get a break in the stock market now, particularly in light of the "Microsoft rule". The rule says that anytime Microsoft enters a market, the stocks of the existing companies in that market get trashed. The new Windows Live OneCare (http://www.windowsonecare.com/) claims to deliver you a "smooth, hassle-free package" to protect your computer around the clock.

But, Microsoft has done OK entering some markets, and, in others, it has been a disaster. The jury will be out on this for a long, long time.

The only big defender of Symantec that I have been able to find is Rick Summer of Morningstar. In early November 2005, at least six Wall Street firms downgraded the stock. One, WR Hambrecht, has since upgraded it.

Summer of Morningstar believes that the Norton brand and opportunities to move into the storage software business should carry the company forward nicely. But, I think the reasons that things look good for Symantec go beyond that.

For starters, a lot of software and PC companies still have a very edgy relationship with Microsoft. Windows is important to them, but Microsoft has done so much damage to its competitors and the issues of antitrust are still fresh enough that having alternatives can be a very comforting thing. I would not rule out antitrust issues arising in the virus protection market depending on how Microsoft prices and distributes its new product.

Second, and perhaps more important, the security threats to computers and information storage systems are going to get worse, and not better, over the next few years. This is an expanding market.

Both IDC and Gartner, the large IT research companies, tend to rank the Symantec products ahead of their competition. The Microsoft product is still in "beta" and it probable that it will not be a large force in the market for now.

McAfee, Symantec, and Internet Security Systems (ISSX), the lead public company players in the field, all trade for about four time 12 month trailing sales. But, McAfee and Internet Security Systems are much smaller than Symantec, which has a revenue run rate of close to $4 billion. McAfee's revenue is at less than $1 billion and ISS is at $330 million.

Given the very broad distribution of this type of software and the huge demand for security on PCs and networks, the market share leader should have a fairly significant premium built into its share price.

With Symantec, that is not the case.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix, and chief executive of On2 Technologies, Inc.