Symantec Claws Its Way Back

With Veritas in the fold, investors are pushing the stock toward a high for the year.
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After suffering through months of criticism and an ugly loss of shareholder value,

Symantec

(SYMC) - Get Report

is slowly returning to favor on Wall Street.

On Tuesday, Merrill Lynch analyst Edward Maguire upgraded the stock to buy and set a $29 share price. A few days earlier, Goldman Sachs analyst Sarah Friar resumed rating the stock with an outperform, saying, "We believe the stock is positioned to benefit strongly from the company's increasing market footprint, muted expectations, and a compelling valuation." Goldman Sachs has an investment banking relationship with Symantec; Merrill Lynch does not.

Since Symantec's controversial $10.5 billion acquisition of Veritas closed on July 2, shares in the Silicon Valley-based antivirus maker have gained 7%. Although that's not an enormous move, it's worth remembering that the stock lost about 26% of its value within weeks after news of the merger leaked out in December. And the mean price target of 26 analysts polled by Thomson First Call is now $27.83.

On Tuesday, the stock gained 65 cents, or nearly 3%, to $24.10 a share on heavy volume.

What's changed? In at least one respect, nothing at all. Investors who believed the mega-deal was misguided haven't yet gotten hard evidence to the contrary. They argue that integrating two large and quite dissimilar companies is difficult, and they say that Veritas, a maker of storage management software, may be a drag on fast-growing Symantec.

Another major concern -- the entry of

Microsoft

(MSFT) - Get Report

into the consumer antivirus market -- remains, but is no longer a code-red item. That's because Microsoft has yet to confirm that it will launch its OneCare Service before the end of the calendar year, and even if it does, analysts now figure it isn't likely to gain much market share for 12 months to 18 months.

Some competition-related price erosion is possible, however.

Meanwhile, Symantec announced a $3 billion share repurchase, which Friar called the stock's "biggest near-term catalyst." The company expects to buy back a maximum of 15% of its average daily volume per day once the buyback is implemented. The Goldman analyst expects the buyback to add 3 cents a share in fiscal 2006 and 10 cents in fiscal 2007. Merrill Lynch's Maguire thinks the boost could be a bit more -- 5 cents to 6 cents in 2006 and 11 cents in 2007.

Symantec will report its last quarter as a standalone company -- Q1 of fiscal 2006 -- on July 28. The June quarter is seasonally weak to begin with, and this quarter has the disadvantage of being compared to the June 2004 quarter, when sales were lifted by a spate of viruses with names such as SoBig, Sasser and MyDoom.

The company also will lose some of the lift engendered by a weak dollar. The more robust greenback will probably knock about a penny a share from earnings in each of the next three quarters, figures Friar.

Even so, the general feeling on Wall Street about the quarter is positive, with even some expectations of upside. More telling, of course, will be guidance for the second quarter, which will include earnings and revenue from both Symantec and Veritas.