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Bull of the Day

If you want exposure to the big trends in cyber-security, you might consider owning the biggest "secret agent" in the business, Symantec ( SYMC - Analyst Report ) . This $17 billion provider of Internet security technology and software to corporations, individuals, and governments has been the beneficiary this year of rising earnings estimates and increased vigilance at the Federal level to combat "cyber terrorism."

In just the last two months, the National Defense Authorization Act, which includes several cybersecurity statutes, was signed into law, two independent cybersecurity bills have been reintroduced to the U.S. Congress, and President Obama signed an Executive Order aimed at improving national IT security, specifically related to "critical infrastructure."

Several computer security names have outperformed the recent meager advances of the tech-heavy Nasdaq, including Check Point Software ( CHKP - Analyst Report ) and Palo Alto Networks ( PANW - Snapshot Report ) which had its IPO last July.

But Symantec has been joined by Sourcefire ( FIRE - Snapshot Report ) and Fortinet ( FTNT - Snapshot Report ) in racking up 30%, 25%, and 20% gains, respectively, in the past 3 months.

While FIRE and FTNT have been favorites of some investors, their P/Es are still very rich. So let's focus on the big watch dog who's Zacks #1 or #2 Rank alerted investors to buy in early January for a 25% gain in two months. Here's a look at the big price breakout for Symantec since its 2008 highs, vs. the Nasdaq 100...

Political Cyber Terror

According to FBR Capital Markets, the "While longer-term trends around the security space continue to be geared around cloud computing initiatives, the proliferation of increasingly sophisticated mobile devices, and data loss prevention (DLP), checks indicate enterprises/governments are beefing up security measures in the wake of an increasingly complex threat environment."

And Jefferies & Company notes the cyber "attack motive is increasingly political-driven, with the threat moving beyond notoriety or financial gain."

This explains the Federal government's high concern with security and the prevention of sabotage, data theft, and network disruption and corruption. So despite budget tightening in Washington, this is one area that analysts feel will not be pinched, but rather see expansion for unified threat management (UTM) technology.

Further, with recent high-profile attacks at large U.S. enterprises like Facebook, Microsoft, New York Times, NBC, etc., analysts see a wave of corporations in the process of major security overhauls to protect their respective networks and IP.

All of this implies an overdue security upgrade cycle at both commercial and government enterprises, causing analysts to raise growth estimates for cyber-security this year from the high single digits to the low teens.

While Symantec has about 10% exposure to the public (government) security market, vs. Sourcefire with 20% exposure, analysts believe it has room to grow into another 5% share.

Moderate Growth, Fair Valuation

Symantec delivered third quarter FY2013 results with EPS and revenue surpassing the Zacks Consensus Estimates. This was also its third consecutive earnings beat of at least 15%. The company witnessed good geographical as well as segmental revenue performances, and as it continues to enjoy a leadership position in the IT security market, it also rolls out new mobile security products at regular intervals.

New and improved offerings from home and office competitors Kaspersky and McAfee, a lackluster PC market, and lower IT spending do pose risks to its fundamentals to some extent. But, given its restructuring initiatives (that should boost margins and eventually earnings), appointment of a new CEO and continuous share buybacks, the stock is definitely one to keep an eye on and pullbacks to support at $22.50 should be accumulated.

Symantec is close to fairly valued at its current P/E multiple of 16X the Zacks consensus for 2013 of $1.52, which is a substantial discount to the industry average. Historically, the stock has traded in a 5-year trailing twelve month P/E range of 9.5x to 20.3x. The company's strong cash position and cost reduction initiatives are encouraging.

The key with Symantec is to watch the earnings estimates and see if they continue to rise as new security initiatives are budgeted for at corporations and governments.

Kevin Cook is a Senior Stock Strategist with Zacks.com

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