Earnings Preview: Symantec Corp.

Symantec Corp. (SYMC - Analyst Report) is scheduled to announce its fourth quarter fiscal 2011 results on May 11 after the market closes, and we do not see any variation in analyst estimates at this point.

Third Quarter Overview

Symantec reported modest third quarter fiscal 2011 numbers, with earnings per share of 17 cents falling way below the Zacks Consensus Estimate of 30 cents. The miss was due to lower margins.

Symantec reported third quarter revenue of $1.60 billion, up 4.0% from the year-earlier quarter and ahead of the Zacks Consensus Estimate of $1.58 billion. Symantec witnessed strength in its Consumer and Security Compliance segments, partially offset by roughly flat growth in the Storage & Server Management segment and a decline in the Services segment. Geographically, contributions from the U.S. and Asia Pacific/Japan region were strong, which was offset by a downfall in EMEA revenues.

Margins decreased from the year-ago period due to higher sales commission as well as acquisition-related expenses. Net income decreased 56.1% from the comparable period last year.

Based on its strong product portfolio and growth prospects in all its served markets, Symantec provided positive outlook for the fourth quarter.

Fourth Quarter Guidance

Revenue is estimated at between $1.585 billion and $1.605 billion, up 4% to 5% year over year. GAAP diluted earnings per share are estimated at between 15 cents and 16 cents. Non-GAAP diluted earnings per share are estimated at between 35 cents and 36 cents.

Agreement of Analysts

Out of the 12 and 13 analysts providing estimates for the fourth quarter and fiscal 2011, respectively, only one raised estimates in the last thirty days. There was no downward revision for the fourth quarter and fiscal 2011.

The unchanged estimates point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, the analysts are sticking to the estimates projected post third quarter earnings and are of the opinion that Symantec will deliver fourth quarter results in line with their expectations.

The analysts believe that the growing importance of cloud computing, mobility and virtualization should continue to drive the need for security. To capitalize on the surging demand, Symantec introduced a number of products, which encompasses all its businesses. They are also positive about a modest growth in the consumer vertical, which was lagging in the last few quarters.

Magnitude of Estimate Revisions

The Zacks Consensus Estimates is 33 cents for the fourth quarter and $1.26 for the fiscal year. Over the past 90 days, there were no changes to the Zacks Consensus Estimate for the fourth quarter or fiscal year. Our estimate for the fourth quarter is below the company’s guidance range, which indicates a strong quarter for Symantec.

Our Take

Given its larger share in the fast-growing security market and the acquisition of VeriSign’s identity/authentication business, we believe that Symantec will be able to capitalize on opportunities in the security market.

The analysts’ outlook for Symantec also indicates potential upside for the shares, based on continuous product launches, positive feedback from customers and channel partners, as well as strategic ties with VMware Inc. (VMW - Snapshot Report) and Salesforce.com Inc. (CRM - Analyst Report).

Though intense competition from big and small players as well as the threat from Microsoft Corp.’s (MSFT - Analyst Report) new Windows operating systems may contain margin expansion, we think Symantec will be able to deliver decent results in the coming quarters, given its history of execution.

Currently, Symantec has a Zacks #2 Rank, implying a short-term Buy recommendation.

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