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Symantec Reiterated at Neutral

Zacks Equity Research

We reiterate our Neutral recommendation on Symantec Corp. (SYMC) post its second-quarter results wherein earnings per share surpassed the Zacks Consensus Estimate but revenues lagged the same.

Why the Reiteration?

Symantec’s revenues remained subdued in the second quarter of 2014 as the company witnessed year-over-year decline in revenues from its operating segments.

Revenues from the User Productivity & Protection segment moved down 3.0% year over year, primarily due to softness in the Endpoint Management segment. Information Security segment revenues decreased 2.0% on a year-over-year basis, primarily due to weak mail, web and data center security businesses. Moreover, Information Management revenues decreased 5% year over year primarily due to Backup Exec and information availability business.

Nonetheless, improvement in authentication and MSS businesses and increase in the NetBackup appliances were the positives for the company. Moreover, Symantec is making continuous efforts to attract small and mid-sized businesses (SMBs) by introducing enhanced versions of storage management and Internet security solutions. These new solutions are expected to secure and manage their information-driven businesses.

Moreover, the company’s restructuring initiatives in refining its channel and partner programs to augment reseller sales are expected to yield long-term benefits.

However, sales of Symantec’s security solutions have been affected by the shrinking PC market. The PC market has taken a big hit and is not expected to recover over the next 2–3 years. This has indirectly affected the sale of Symantec’s PC security solutions to a considerable extent and affected business volume.

Moreover, execution risks remain on the restructuring initiatives undertaken by Symantec. If the company’s revamped go-to-market strategy does not yield the desired results, it will have a negative effect on its overall performance.

Additionally, the company faces increased competition from other bellwethers such as Microsoft (MSFT) and Intel (INTC). Other small and medium-sized companies like Kaspersky, Trend Micro Inc. and VMware, Inc. are gaining market share.

Currently, Symantec has a Zacks Rank #4 (Sell). Investors may also consider SanDisk Corp. (SNDK) which sports a Zacks Rank #1 (Strong Buy).

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