Updated from 12:06 p.m. EST

Shares in security-software maker Symantec ( SYMC) dropped Thursday after an analyst raised issues about its earnings.

In the morning, Summit Analytic analyst Richard Williams initiated coverage with a sell recommendation on Symantec, the maker of the Norton antivirus products with a note that later drew at least one rebuttal from a fellow analyst.

Williams said he believes roughly half of Cupertino, Calif.-based Symantec's pro forma earnings growth in the past and in the next fiscal year is coming from convertible accounting rather than organic operations. He calculated that the way Symantec accounts for its recently issued $600 million convertible bond issue boosts the company's earnings by 2 cents a share each quarter. He explained in a telephone interview that Symantec officials told him that the company reduces interest expenses to calculate pro forma earnings because Symantec assumes the bonds are converted into stock.

Williams noted that Symantec fully accounts for interest in its statements made according to general accounting principles. "We're not saying Symantec is doing anything wrong," Williams said.

Williams also said in his note that he believes business conditions and growth rates are not sufficient to support the stock's current valuation, and he has set a six- to 12-month price target of $25.

"Our issue is with the valuation, not with management, the medium-term direction of the company or even the accounting treatment of convertibles," he wrote.

Shares in Symantec dipped by as much as 10 percent and then bounced back slightly. Shares were down $2.03, or 5.7%, at $33.61 in recent trading.

Symantec spokeswoman Genevieve Haldeman declined comment. "We feel we have already communicated our position on this surrounding our earnings announcement," she said.

A footnote in the company's latest quarterly earnings report explained that pro forma diluted net income per share excludes the interest expense.

Other analysts, however, expressed confusion over Williams' note. A.G. Edwards analyst Mary O'Rourke Werner issued a note Wednesday rebutting him, saying that Symantec accounts for its debt in a way that is most dilutive to earnings. "We feel the analyst is simply misunderstanding accounting rules," she said. She owns a position in the stock.

One day earlier, Janney Montgomery Scott analyst Joel P. Fishbein Jr. initiated coverage on Symantec with an accumulate rating, calling it "one of our favorite players in the Internet security market." He set a price target of $43, estimating earnings could increase 20% to 25% during the next three years. His firm has done no banking for Symantec.

Including acquisition costs related to its Axent purchase, Symantec broke even for the quarter that ended Dec. 28, down from net earnings of 21 cents a year ago. Excluding such costs, the company earned 78 cents a share, beating the 52-cent consensus estimate gathered by Thomson Financial/First Call.

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