Viruses and worms and spam -- oh my! If Internet malfeasance has you worried, never fear. Norton Antivirus provider Symantec (NASDAQ:SYMC) is here -- to tell you how very lucrative it is to protect you from online baddies. Symantec reports fiscal Q4 2006 earnings today after close of market.
What analysts say:
- Buy, sell, or waffle? Symantec's lost one analyst since January, but with three dozen analysts, there's still plenty of coverage. Three of those analysts still rate the stock a sell, there's one fewer hold (16), and still 17 buy ratings.
- Revenues. Thanks to its acquisition of Veritas, Symantec's sales numbers are expected to skyrocket 78.2%.
- Earnings. Profits, on the other hand, are expected to fall a penny to $0.25 per share.
What management says:
With the fiscal year almost over, Symantec turned its attention to fiscal 2007 in its last earnings report. Citing its "growing deferred revenue balance, broad product portfolio, and diverse customer base," CEO John Thompson promised "consistently predictable results" back in January. Then the unexpected happened.
It was big news in recent weeks: The IRS demanded that Symantec pay $1 billion in taxes, which the Feds argued were owed by newly acquired Veritas in connection with a technology-licensing agreement between the latter and one of its foreign subsidiaries. That news put an immediate damper on Symantec's stock price, but the market seems to have since reconsidered, and now believes that the chances of Symantec having to pay the full amount demanded are slim.
What management does:
IRS demand letters aside, let's look at what the past tells us we should be "consistently predicting" for Symantec's future. Today and next quarter, I'd say, we should expect a continued slide in rolling margins at the company. Gross margins declined slightly, but immediately, as soon as Veritas' business was added to the Symantec mix. Plus, with Symantec now recording large expenses for R&D and depreciation and amortization, its operating and net margins are taking even bigger hits.
I'm guessing we'll see the rolling net margins improve before anything else. The in-process R&D write-off that was recorded in the September 2005 quarter will fall off the other end of the 12-month-trailing results in six months. Meanwhile, rolling operating margins continue to be burdened by recurring non-cash "costs" for amortization of goodwill from the Veritas purchase. Those costs will weigh on operating results until they stop recurring.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
85.2 |
85.6 |
84.4 |
84.6 |
83.9 |
83.9 |
|
Op. |
30.9 |
31.4 |
32.3 |
33.5 |
24.1 |
18.9 |
|
Net |
21.6 |
22 |
20.8 |
22.7 |
7.3 |
4.4 |
The Fool says:
Now let's take another look at the IRS matter. While Mr. Market got terribly upset at the Feds' tax demands, Foolish investors knew right away that the problem was being blown out of proportion. On April 19, my Foolish colleague Tim Beyers set the record straight, pointing out that "Symantec already has enough cash on hand to cover the bill." He also noted that Symantec "generated roughly $1.2 billion in free cash flow over the trailing 12 months." In other words, even if the company has to pay the piper in full, it has the cash to do so, and can replenish the hole in its balance sheet in just ten months.
Competitors:
- McAfee (NYSE:MFE)
- BMC Software (NYSE:BMC)
- CA Inc. (NYSE:CA)
- Cisco Systems (NASDAQ:CSCO)
- Microsoft (NASDAQ:MSFT)
- Altiris (NASDAQ:ATRS)
Fool contributor Rich Smith owns shares of both McAfee and Symantec. McAfee is a Motley Fool Stock Advisor pick, while Microsoft is a Motley Fool Inside Value selection. The Fool has a disclosure policy.
