Sell Symantec After Weak Fourth-Quarter Results and Downbeat Guidance

 

NEW YORK (TheStreet) -- Cyber threats are on the rise and hackers have become more sophisticated today than they've ever been thanks to all the mobile devices and other products tied to the Internet-of-Things. Securing these devices is great for the security business.

Ordinarily, this would bode well for security and enterprise services specialists like Symantec (SYMC), whose Norton antivirus and anti-hacking software remains popular among both business and consumers desktops computers. But the company's fourth-quarter results released Thursday suggests investors should look elsewhere for better stock gains.

SYMC currently is down nearly 4% to $25 and is off 2.7% for the year to date. But over the past 52 weeks the stock is up 12%, making this a perfect opportunity to lock in profits.

While SYMC looks cheap at 19 times earnings compared to a P/E of 21 for the S&P 500, the Mountain View, Calif.-based company is struggling to compete effectively against competitors including FireEye (FEYE) and Palo Alto Networks (PANW).

Fourth-quarter revenue dropped 6% year over year to $1.55 billion, missing analysts' revenue estimates of $1.56 billion and marking the third consecutive quarter of revenue declines. In the third quarter, revenue fell 4%, following a 1.2% revenue decline in the second quarter -- both missing estimates.

Sure, the company has been profitable. The fourth-quarter profit of 43 cents per share continues the streak to 10 straight profitable quarters. Symantec still missed fourth-quarter adjusted earnings-per-share estimates by a penny. Plus, it translates to a year-over-year profit decline of more than 10%, owing -- in part -- to a 10% decline in operating margin, which fell to 18.8%.

"Fiscal 2015 was a transformative year for Symantec, as we announced our unified security and information management strategies, delivered more than fifty products, and made the decision to separate Symantec and Veritas into two standalone companies," said CEO Michael A. Brown in a statement.

Revenue and earnings are heading in the wrong direction. Symantec needed to significantly outperform expectations Thursday and raise guidance. It didn't do that. The company offered the type of outlook that suggests both revenue and profits will be hard to come by.

For the first quarter, Symantec expects adjusted earnings of 41 cents to 44 cents per share on revenue of $1.5 billion to $1.54 billion. Analysts were looking for earnings of 45 cents per share on $1.62 billion in revenue. Full-year revenue of $6.21 billion to $6.35 billion is also shy of estimates of $6.55 billion.

Symantec wants time to figure out its next strategy. But there's no guarantee that its decisions will work. While its 2.32% annual dividend yield is solid, that's not close to being enough to risk the growth investors can find elsewhere in stocks like Palo Alto or FireEye.

Sure, neither Palo Alto or FireEye pay a dividend. But if that's the criteria, there's Cisco (CSCO) -- a security leader that pays a 3.00% annual yield. CSCO -- at a P/E of 17 -- trades two points cheaper than SYMC, which will remain under pressure until the company can show that it can grow revenue at a rate that suggests it can capture market share in a booming security industry.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong