Symantec Shares Way Over Extended, January 27 2013
Symantec lowered forward guidance next quarter and now forecasts no growth (0%-2%) for the next year while simultaneously risking major disruption to try and re-work it's business in attempts to stave off market share erosion in the 2-3 year time frame out in the future. And massive charges being taken. So it makes absolutely no sense whatsoever shares sit where they do today, even in spite of the market rally (which is a big contributor as well). Yes there is some positives such as cost-reductions in terms of layoffs and a dividend, but neither remotely justify a $22+ stock price.
I forecast there would be an analyst tug-o-war after the recent call, and sure enough that is exactly what has happened. Be very clear about this one fact: THE PRIMARY REASON THE SHARES ARE OVER INFLATED IS DUE TO CERTAIN ANALYST AND EDITORIAL HYPING, and secondarily the market run. Conversely, a number of credible analysts have come out and stated what I've been implying the last many weeks - they downgraded the shares to a HOLD citing valuation concerns, internal disruption concerns and taking a prove-it-to-us stance from here forward. Most of those analysts have a TWELVE MONTH price target ranging from $19 to $22. Conversely there are have a half dozen of the usual guilty mega-analysts who have interests or ties to the share price and are grossly over-hyping with ridiculous price targets. This game is not new, these same mega-cap analysts have been over-hyping the shares before because their constituents or puppet masters are holding large amounts of inventory, many of which are still stuck in large volume back before the Veritas debacle. And of course a few hedge funds pulling strings in the editorial ranks to assist the game.
New prospective investors should absolutely steer clear of entering at these levels. With some patience you WILL see the $20.50 - $21 area again, and likely lower when the market eventually corrects.
Again, congrats to long holding longs, and over the long haul we will hopefully see further increases. But be very clear that these current levels are entirely unjustified and were gamed at every turn over the last few weeks, and simply unsustainable relative to the current market levels.
I actually have to agree, the technical indicators are over extended on the daily, and even the weekly is almost topped out already as well, and both are very overbought, including the broad market. Clearly more downside risk at this point than any further potential upside, the long run from July is exhausted.
Here's some comments from the CEO I found on the DOW wire, pretty telling:
"The goal by 2017 is to create a company driven by new products and earning 30% adjusted operating margins annually and 5% organic revenue growth, compared to one delivering about 25% margins and barely 2% growth today." Even then, Symantec will only be back to the [average] 5% to 8% growth rate in the overall security software market. "We've got heavy lifting to meet the numbers we've put out." said Mr. Bennett. "I'm not happy running a company losing market share."
2017 is a long way out yet, and the shares are already anticipating best case results. I also saw some figures in a number of articles this weekend where Analysts are trying to project the actual headcount reduction ahead, but so far they are all failing to take into consideration the $50 million the CEO said he was including for full year bonus payout. So the computations the analysts are using based on past actions is flawed and creating estimates that are almost guaranteed too high.
This has turned into a momentum play at this point, I think too many people gambled on hopes of a break-up and now there are too many committed players desperately trying to push the shares. I certainly would not be buying at the $22 price point, especially with the market being ahead of itself as well.
I too concur. Just today alone I've seen attempts to pump the stock by more than one non-credentialed online financial rag, and now some fund managers themselves are screaming. When that happens you know something in the Wall Street plan went bad. It does indeed smack of some big funds and analysts having expected a break-up, and when it unexpectedly didn't materialize last week they are now trying to pump and bully their way out of the mess they got themselves into. That would explain why there is a disparity between various analysts. Those trying to tell the objective truth and those trying to help out constituents by fooling investors out of their money at a premium.
If the shares traded in the mid teens on average for the last five years, then why now suddenly should they be worth a premium? Makes no sense. Yes, some good company moves are finally being made. But to argue the shares are a buy or undervalued is almost laughable at this stage. That is an entirely imbalanced risk vs. reward scenario. Just as well to play a market index at this point.
Today Commvault announced in their quarterly report that they are continuing to eat share from Symantec. While other software companies are also citing concerns about serious weakness in Europe, which Symantec is very exposed.
Be careful at these levels as both Symantec shares and the general market remain over extended.