Earnings Preview: Symantec Corp.

Symantec Corp. (SYMC) is scheduled to announce its third quarter fiscal 2011 results on January 26 after the market closes, and we do not see any variation in analyst estimates at this point.

Second Quarter Overview

Symantec reported encouraging second quarter fiscal 2011 numbers, with earnings per share of 34 cents beating the Zacks Consensus Estimate by 9 cents.

Symantec reported second quarter revenue of $1.48 billion, up 2% from $1.474 billion in the year-ago quarter. The reported revenue also surpassed the Zacks Consensus Estimate of $1.45 billion. The increase in revenue was attributed to solid performance by the Backup and Archiving segment, as well as good momentum in hosted services and data loss prevention.

Symantec witnessed growth in the public sector, attributable to strength across all product lines registered by both civilian and defense agencies.

Margins also saw year-over-year improvements in the second quarter. Net income, on a GAAP basis, decreased 12.2% from the prior-year comparable quarter. Excluding special items, non-cash interest expense, gain on sale of assets and amortization of intangibles, non-GAAP net income increased 9.8% year over year.

Symantec exited the quarter with cash and short-term investments of $2.26 billion, down from $2.74 billion in the previous quarter. The company generated cash flow from operating activities of $310.0 million in the second quarter compared to $335.0 million in the previous quarter.

For the third quarter of fiscal 2011, revenue was estimated between $1.57 billion and $1.59 billion, up 2.0% to 3.0% from the year-ago quarter. GAAP diluted earnings per share were guided between 23 cents and 24 cents. The company expects non-GAAP diluted earnings per share of between 32 cents and 33 cents.

Agreement of Analysts

Out of the twelve analysts providing estimates for the third quarter, none have revised their estimates in the last thirty days. Neither was there any estimate revision for fiscal 2011.

The unchanged estimates point to the fact that there were no major catalysts during the quarter that could drive change analyst opinion on Symantec’s performance. Consequently, analysts are of the opinion that Symantec will deliver third quarter results in line with their expectations.

Despite recent improvements in the enterprise business, some analysts expect better sales execution and product strength around DLP, SaaS offerings, and NetBackup. Others also believe that in security and storage, the sales focus should be on the merits of the technology.

Magnitude of Estimate Revisions

Over the past 30 days, there were no changes to the Zacks Consensus Estimate for the third quarter or fiscal year. Estimates have been revised upward by 1 cent for the third quarter, by 8 cents for fiscal 2011 and by 5 cents for fiscal 2012.

Our Take

The recent acquisition of McAfee Inc. (MFE) by the semiconductor giant Intel Corp. (INTC) could fuel competition in the security software space, thus increasing investor concerns. But we believe that given its higher share in the fast-growing security market and the acquisition of VeriSign’s identity/authentication business, Symantec will be able to capitalize on potential opportunities.

We also believe that while Symantec’s enhanced product portfolio and improved execution may lead to impressive third quarter revenue, pricing pressure is likely to hurt margins. Integration risks and an unimpressive guidance are other negatives.

Considering the above factors, we maintain our short-term Hold recommendation on Symantec, as indicated by the Zacks #3 Rank.

SYMANTEC CORP (SYMC): Free Stock Analysis Report

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