Symantec Stock Is a Value Trap Ahead of Earnings
Despite the strong money-making prospects of cybersecurity companies, expecting Symantec (SYMC) - Get Report to participate in the industry's growth has cost investors tons of money. For more than a year, we've been right about SYMC stock and its gloomy outlook. And ahead of the Symantec's second-quarter fiscal 2016 earnings results Thursday, there's nothing to suggest we should change our opinion on these shares, despite how attractive they may appear.
Symantec, headquartered in Mountain View, Calif., has seen its stock plummet 20% so far in 2015 and 17% over the past 12 months. These declines have come even though cyber threats continue to rise, driving huge spikes in security stocks like Palo Alto Networks (PANW) - Get Report , whose shares are up 35% in 2015 and trades at forward P/Es of 97.
By contrast, Symantec, which sells Norton Antivirus, is priced on a forward P/E of 10, which is seven points lower than the forward P/E of the S&P 500 (SPX) . This means, based on consensus fiscal 2016 earnings per share estimates of $1.83, SYMC stock would be valued at around $31, not its current level of $20 -- if it traded on par with the rest of the market.
This scenario -- among others -- brings some appeal in SYMC stock, which has a consensus hold rating and an average analyst 12-month price target of $24. But this level of appeal has been there for some time. The implied lack of confidence in Symantec's low P/E ratio suggests tepid projected growth.
Not only has Symantec missed Wall Street's earnings estimates in two straight quarters, its revenue has missed analysts' projections in three straight quarters. During that span, its guidance has disappointed. These struggles continue to manifest despite the company owning critical antivirus applications and other computer threat detection assets.
Many businesses are moving to newer technologies from the likes of Palo Alto Networks and FireEye (FEYE) - Get Report . And it hasn't helped that Microsoft (MSFT) - Get Report offers security software that now comes free within its operating system.
Accordingly, with fiscal year 2016 -- ending March 2016 -- calling for more than 2% and 5% year-over-year declines in earnings and revenue, respectively, SYMC stock should be avoided.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.