Symantec's 2-Billion-Buck Buyback

Hard on the heels of last week's billion-buck buyback news from semiconductor firm Analog Devices (NYSE: ADI), another high-profile player in the tech space upped the ante this morning. Internet security specialist and Motley Fool Inside Value recommendation Symantec (Nasdaq: SYMC) announced the completion of a $1 billion share-repurchase program -- which it initiated just six months ago -- and the beginning of a new repurchase effort twice the size.

That's right, folks. Having spent $1 billion to repurchase 54 million shares at an average price of $18.51, Symantec is "averaging up" on its own cost basis. It's doubling down on a stock that's selling for about 7% higher than when it announced its first buyback program. This poses two questions for us:

Can it pay?
Yes, it can. Reviewing the numbers, I see that Symantec generated $1.25 billion in trailing free cash flow over the past 12 months, has $2.99 billion in the bank, and owes $2.1 billion in debt. Even if we conservatively assume no growth in free cash flow this year, that still means Symantec can afford to continue buying back shares at the same pace it set over the first six months of this year. If it does so, then $2 billion and 12 months later, it will still have slightly more cash than debt on its balance sheet.

Should it pay?
That one's a bit trickier. Sure, Symantec has the cash to afford the buyback without going into "net debt" -- but should it spend that cash? After reviewing Symantec's valuation, and comparing it with those of its competitors, I vote yes.

Company	P/E	Price-to-Free Cash Flow	5-Year EPS growth*
Symantec	48	14	12%
CA (NYSE: CA)	120	15	11%
McAfee (NYSE: MFE)	40	17	15%
Microsoft (Nasdaq: MSFT)	22	20	12%
EMC (NYSE: EMC)	30	22	15%

*Analyst estimates, annualized.

From a straight P/E versus growth-rate perspective (the venerable "PEG" ratio), Symantec looks like no bargain, true. (Then again, in all of the above list, only Microsoft looks to have anything resembling a bargain PEG.)

That said, when you look through P/E to a ratio more indicative of true cash profitability -- its market cap divided by its cash profits, or free cash flow -- Symantec's P/FCF ratio of 14 makes things look much closer to being fairly valued. If management is deciding to buy back stock based on the valuations Mr. Market is according competitors in this space, I can understand why it thinks its stock is undervalued. And in fact, that's an opinion we share at Motley Fool Inside Value, where value guru Philip Durell thinks the stock is trading below its intrinsic value. (Microsoft is part of the Inside Value stable, too.)

Curious to learn how much Philip thinks Symantec is worth? With the click of a button, you can. Just sign up for a 30-day free trial of Inside Value (at no risk -- it's a free trial, after all), and you can read his investing thesis for free. (Did I mention that it's free?)

Fool contributor Rich Smith does not own shares of any company named above.