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Symantec (SYMC) to Report Q1 Earnings: What Lies Ahead?

Zacks Equity Research

Symantec Corporation SYMC is scheduled to report first-quarter fiscal 2020 results on Aug 8.

The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 10.78%.

In the last reported quarter, Symantec reported earnings per share of 39 cents that matched the Zacks Consensus Estimate. The figure, however, declined 15.2% year over year.

On a non-GAAP basis, Symantec generated revenues of $1.195 billion, which missed the consensus estimate of $1.208 billion. Moreover, revenues were down 2.2% from the year-ago quarter.

The top line was hurt by lower-than-expected bookings in the Enterprise Security segment.

What to Expect in Q1

For the first quarter of fiscal 2020, Symantec anticipates non-GAAP revenues in the range of $1.18-$1.21 billion. At midpoint, it indicates 3.5% growth. The Zacks Consensus Estimate stands at $1.19 billion, indicating growth of 2.65% from the year-ago quarter figure.

Further, management estimates earnings between 30 cents and 34 cents on a non-GAAP basis. The consensus estimate is pegged at 43 cents, indicating a decline of 5.88% from the year-ago reported figure.

Let's see how things are shaping up for the upcoming announcement.

Symantec Corporation Price and EPS Surprise

Symantec Corporation Price and EPS Surprise

Symantec Corporation price-eps-surprise | Symantec Corporation Quote

Factors at Play

Symantec is gaining from data breaches as demand for cybersecurity-related products continues to shoot up. The company’s continuous efforts to strengthen its product suite are likely to benefit the fiscal first quarter’s top line.

In the Consumer Cyber 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.

This segment is expected to grow in the to-be-reported quarter.

Management expects revenues from this segment to range between $620 million and $630 million, indicating a 3.3-5% year-over-year increase. The Zacks Consensus Estimate stands at $625 million.

Symantec continues to benefit from Integrated Cyber Defense Platform, which drives significant cross-sell and up-sell opportunities. Notably, the company’s endpoint security products witnessed growth revival in the last reported quarter, and are expected to maintain the uptrend in the fiscal first quarter as well.

Symantec’s DLP (Data Loss Prevention) product is gaining significant traction, growing at more than two times the market rate. The company expects the uptrend to continue in the fiscal first quarter, and over the next few quarters.

Moreover, in the to-be-reported quarter, Symantec is likely to have benefited from the Managed Endpoint Detection and Response Service, which allows focused threat hunting service to the large installed base of endpoint security customers.

Interestingly, the fiscal first quarter will bring approximately $70 million of revenues by the virtue of an extra week.

However, $40 million of extra expenses are likely to be a dampener for the company due to this extra week. For the fiscal first quarter, operating margin is expected to be in the range of 25% to 27%, down from 29% in the previous quarter. Higher costs in the Enterprise business is also expected to keep margins under pressure.

Furthermore, increased competition from the likes of Palo Alto Networks PANW and Fortinet FTNT poses a major headwind for the company.

Additionally, low ProxySG refresh cycle and tepid sales of cloud proxy, Web Security Services, mainly due to competition loss to Zscaler ZS, are concerns.  

Moreover, Symantec has been plagued by issues in management for quite some time now. Greg Clark stepped down as the CEO in May this year, following which, Symantec’s director Richard Hill was named interim president and CEO. These top-level management issues make us anxious.

Currently, Symantec carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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