If you are still holding on to shares of Symantec Corporation (SYMC - Free Report) in your portfolio, it is time you dump those as chances of favorable returns in the near term appear bleak.
Similar to wise buying decisions, offloading certain underperformers at the right time helps maximize portfolio returns. Symantec has witnessed a significant price decline in the year-to-date period, and negative earnings estimate revisions for the current quarter and the fiscal. Further, the company’s Zacks Rank #5 (Strong Sell) only reflects its innate weakness.
Notably, the stock has lost 24.4% of its value in the year-to-date period, substantially underperforming the 17% rally of its industry it belongs to.
Let’s take a look at factors behind this plunge.
Investigation Woes Pulling Share Price Down
The plunge particularly came after the company, during the fourth-quarter fiscal 2018 earnings conference call, reported that its board’s audit committee is making an internal investigation into the concerns voiced by an ex-employee. The company did not divulge details on the nature of the investigation, however, Symantec stated that it isn’t related to any security breach or concern regarding products and systems.
Lack of clarity on the probe announced, along with executives’ refusal to take questions post the earnings conference call, has resulted in a plunge of more than 27% in Symantec’s shares since May 10 to till day.
Later, on May 14, this cyber-security provider held another press meet and stated that the probe relates to the reporting of certain non-GAAP accounting measures, which includes executive compensation too, public disclosures including commentary on the company’s historical financial results, certain forward-looking statements, stock trading plans and retaliation.
We believe this information is inadequate to gain investors’ confidence. The ongoing investigation may throw light on some serious issues which might severely cost the company in the near future. Therefore, it is wise to wait and watch for some time for better visibility of the stock.
Dismal Outlook Dims Near-Term Prospects
Symantec’s weaker-than-expected outlook for the first quarter as well as fiscal 2019 makes investors cautious about its near-term performance. Also, the company expects non-GAAP operating margin for fiscal 2019 in the range of 30-32%, which reflects a substantial decline from the fiscal 2018 level of 34.7%. The reduction in margins is mainly due to continued shift of business model to ratable revenues, and increased investment in sales and marketing capacity.
Downward Estimate Revision
Following the company’s fourth-quarter fiscal 2018 results and investigation revelation, the stock has witnessed sharp downward estimate revision. For fiscal 2019, we have seen 14 estimates moving south in the past 60 days. This trend has caused the consensus estimate to trend downward from $1.82 to $1.57.
Additionally, for the current quarter, Symantec has seen 11 downward estimate revisions, dragging the consensus estimate down to 33 cents per share from 41 cents per share, in the past 60 days.
Stocks to Consider
Some better-ranked stocks from the computer-software industry space are Cadence Design Systems, Inc. (CDNS - Free Report) , Aspen Technology, Inc. (AZPN - Free Report) and Citrix Systems, Inc. (CTXS - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected earnings growth rate for Cadence Design Systems, Aspen Technology and Citrix Systems are 12%, 10.1% and 9.1%, respectively.
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