A month has gone by since the last earnings report for Symantec (SYMC - Free Report) . Shares have added about 18.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Symantec due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Symanted Reports Solid Q2 Results
Symantec reported second-quarter fiscal 2019 non-GAAP earnings of 42 cents per share that surpassed the Zacks Consensus Estimate of 33 cents and the year-ago quarter figure of 40 cents.
On a non-GAAP basis, Symantec generated revenues of $1.184 billion, which beat the Zacks Consensus Estimate of $1.144 billion, but were down 7% from the year-ago quarter.
The company benefited from strong growth in Consumer Digital Safety segment. However, on the conference call, management stated that “momentum loss” in Enterprise Security in the first half remained a concern.
Nevertheless, the company reiterated its outlook for fiscal 2019, which is likely to ease concerns as the company had cut the guidance in fiscal first quarter.
Quarter in Detail
Consumer Digital Security revenues in the quarter were $601 million, indicating growth of 5% from the year-ago quarter in constant currency.
However, Enterprise Security revenues of $583 million declined 17% from the year-ago period. Enterprise Security implied billings of $583 declined 3% year over year, adjusted for acquisitions and divestitures.
The company shifted its business model to a more ratable one. In the second quarter, 81% of the company’s Enterprise Security revenues were ratable under ASC 606 compared with 82% in the previous quarter. For Consumer Digital Security, ratable revenues were 98%.
Nonetheless, the company is benefiting from Integrated Cyber Defense Platform, which drives significant cross-sell and up-sell opportunities. Moreover, key customer wins for Cloud Proxy, Cloud Access Security Broker, and cloud e-mail offerings were a positive.
Contract length was nearly 17 months during the quarter compared with 16.5 months in the preceding as well as year-ago quarter.
In the Consumer Digital Safety business, the company is witnessing improvement in ARPU on the back of successful cross-sell and improvement in retention rate for its direct customer base.
Symantec reported non-GAAP operating income of $375 million, which declined 14% from the year-ago quarter. Non-GAAP operating margin contracted 240 basis points (bps) to 31.7%.
Enterprise Security Operating margin of 15% declined from 23% in the year-ago period due to the divestiture of website security and related PKI products. Consumer Digital Safety operating margin expanded 100 bps to 48% in the quarter.
Balance Sheet & Cash Flow
Symantec exited the fiscal second quarter with cash, cash equivalents and short-term investments of $2.436 billion compared with $2.324 billion in the prior quarter. The company ended the quarter with long-term debt of $4.442, down from $5.032 billion in the previous quarter.
During the quarter, Symantec generated operating cash flow of $240 million compared with $334 million in the prior quarter. Free cash flow was $189 million.
For fiscal 2019, Symantec continues to expect non-GAAP revenues in the range of $4.670-$4.790 billion.
Non-GAAP operating margin is maintained at 30%. Non-GAAP earnings per share are still anticipated to be in the range of $1.47 to $1.57.
For the third quarter of fiscal 2019, Symantec anticipates non-GAAP revenues in the range of $1.160-$1.190 billion.
Non-GAAP operating margin is projected in the range of 30%. Further, management estimates earnings between 37 cents and 41 cents on a non-GAAP basis.
Management notes third and fourth quarters to be seasonally biggest for the Enterprise business. However, the Equifax breach in the year-ago quarter is expected to lead to tough year-over-year comparisons for the company’s Consumer Digital Safety segment. Management expects the consumer business to grow 1% in the fiscal third quarter.
Further, management notes that revenue growth in both Enterprise Security and Consumer Digital Safety segments coupled with cost reduction initiatives undertaken during the remainder of fiscal year 2019 will have a positive impact on operating margin in fiscal 2020.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 7.56% due to these changes.
Currently, Symantec has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Symantec has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.