Symantec Erases Doubts With Solid Quarter - TheStreet

SAN FRANCISCO -- After a few false starts, IT security giant

Symantec

(SYMC) - Get Report

is finally hitting its stride although it may not be entirely out of the woods.

After having disappointed investors in the past, Symantec posted strong fourth-quarter earnings Wednesday and offered a robust outlook that sent the company's stock soaring by nearly 10%.

Symantec's cheery guidance helped allay concerns that the economic slowdown could have a negative effect on IT spending and take a toll on the company's sales. The results also puts Symantec in a position as a defensive stock in a challenging economic environment as companies are unlikely to scale back on spending in IT security, compliance and information storage, industry experts say.

But Symantec still faces some big challenges. For example, analysts say the company is seeing slow growth in its bookings, an indication of future demand for its products, and its enterprise security business is underperforming that of rival

McAfee

( MFE). Meanwhile, smaller private companies such as Sophos have been stealing some of Symantec's biggest customers.

For investors, though, Wednesday's earnings report is good news because Symantec has proved that its efforts to integrate

its 2005 purchase

of storage company Veritas is paying off and that the company can consistently beat expectations.

"The combination of strong product cycle and better execution is the long awaited two-in-one-punch that should help lift the stock significantly over the next few quarters," says Daniel Ives, an analyst with Friedman, Billings, Ramsey in a research note. Friedman, Billings, Ramsey makes a market in Symantec shares.

Symantec stock surged $1.83, or 10.6%, to $19.05 in recent trading.

Discounting Thursday's spike from its latest earnings report, Symantec's stock had been up 7.2% since the beginning of the year, while McAfee is down 10.2%. Competitor

Check Point Software Technology

(CHKP) - Get Report

gained 8%. The

Nasdaq

composite index declined 7.5% during the same period.

Symantec reported net income for the quarter rose to $186 million from $61 million, the year before. Excluding items, Symantec reported EPS of 36 cents vs. 24 cents a year ago and was 2 cents higher than analysts' estimates of 34 cents. Revenue rose to $1.54 billion from $1.36 billion the earlier quarter and was slightly higher with analysts' expectations of $1.53 billion.

Still, Symantec posted only 5.5% bookings growth for the March quarter compared to 15.2% growth in the previous quarter and 5.8% in the September 2007 quarter, estimates Kevin Buttigieg, an analyst with the Stanford Group, who has a hold rating on the stock.

For the June 2008 quarter, the Cupertino, Calif.-based company guided revenue in the range of $1.55 billion and $1.59 billion. Excluding charges, earnings are expected to range between 34 cents and 36 cents a share. Analysts are expecting earnings of 31 cents a share on revenue of $1.5 billion.

The strong guidance indicates the company is feeling confident about its future, says James Beer, chief financial officer for Symantec.

"We have a good product set, our pipeline of business is the strongest it has been in number of years and we are in a very robust market," he says.

Symantec could also be "better insulated" than many other IT companies in an economic slowdown, says Beer.

But industry watchers say Symantec faces intense competition from smaller security companies such as Sophos,

Trend Micro

and Kaspersky Labs.

Two weeks ago, industry research firm The 451 Group

reported that

U.K.-based Sophos beat Symantec to a 120,000-seat deal to offer security software to defense contractor

Northrop Grumman

(NOC) - Get Report

. Last year, Sophos also outmaneuvered Symantec on a 350,000-seat contract with

GE

(GE) - Get Report

.

"There are a few issues with Symantec's product line that it is making it very difficult for them," says Paul Roberts, an analyst with the 451 Group. "The size and complexity of Symantec's endpoint agent makes it very resource intensive, leading to some customers wanting a smaller and lighter product."

Symantec will have to invest better in its engineering team to make its product lighter and more friendly to customers. The company will also have to improve the integration of products from its acquisitions with its core portfolio, says Roberts, echoing a long standing criticism about how Symantec approaches its purchases.

While Symantec has seen significant gains in its storage business as a result of the Veritas acquisition, the company needs to improve its message to customers.

Rivals such as McAfee or Sophos are beating Symantec when it comes to selling IT security products to enterprise customers because they position themselves as completely focused on IT security. Symantec, with its fingers in the security and storage pies, comes across as lacking specialization in either, says an industry analyst who did not want to identified.

Symantec is aware of these problems. Wednesday's strong earnings report could be the beginning of a turnaround in investor sentiment that could give Symantec the time it needs to fix them and regain its position as the unbeatable market leader.