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NortonLifeLock (NLOK) Up 6.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for NortonLifeLock (NLOK). Shares have added about 6.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is NortonLifeLock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

NortonLifeLock’s Q3 Earnings & Revenues Beat Estimates

NortonLifeLockreported third-quarter fiscal 2020 non-GAAP earnings of 25 cents per share that increased0.5% year over year. The figure beat the Zacks Consensus Estimate by 212.5%. This was driven by strong execution and lower stranded costs.

Revenues were up6.8% year over year to $649million, beating the consensus mark of $608 million.

Notably, on Nov 4, 2019, the company changed its corporate name from Symantec Corporation to NortonLifeLock, post the completion of the divestiture of its Enterprise Security business assets to Broadcom.

Quarter Details

Direct customer revenues (87.7% of revenues) inched up 0.4% year over year to $542million.Partner revenues (9.9% of revenues) fell1.6% on a year-over-year basis to $61 million.

Revenues from ID Analytics (2.4% of revenues) grew15.4% from the year-ago quarter to $15million.

Direct average revenue per user (ARPU) increased 1.2% year over year to $8.99.

Continued stabilization of direct customer count was a positive. Customer count increased sequentially during the quarter for the first time in more than two years.

In third-quarter fiscal 2020, gross profit increased 2% year over year to $515 million. Gross margin expanded 120 basis points (bps) on a year-over-year basis to 83.3%.

Operating income on a non-GAAP basisrose 27.3% year over year to $224 million. Operating margin expanded760 bps on a year-over-year basis to 36.2%.

Balance Sheet

As of Jan3, 2020,NortonLifeLockhad $12.65 billion in cash and cash equivalents compared with $1.83 billion in the prior quarter. Long-term debt was$3.72 billion, up from $3.22 billion in the previous quarter.

Moreover, cash flow from operations was $399 million, up from $181 million in the second quarter of fiscal 2020. Free cash flow was $389 million, up sequentially from $154 million.

Guidance

For the fourth quarter of fiscal 2020, NortonLifeLock expects revenues between $595 million and $605 million. Notably, the ID Analytics business was sold to LexisNexis Risk Solutions in January this year. Therefore, revenues from this unit have been excluded from the guidance.

Management continues to expect low-single-digit bookings growth.

Moreover, non-GAAP earnings from continuing operations are expected between 15 cents and 20 cents per share.

Further, upon the elimination of stranded costs (less than $750million at the end of reported quarter), the completion of the transition services to support Broadcom and a full-year benefit from the share buyback program over the next 12months, NortonLifeLock expects operating margin to reach 50% and annual earnings of $1.50 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 331.77% due to these changes.

VGM Scores

Currently, NortonLifeLock has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise NortonLifeLock has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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