Symantec Slides on AOL-McAfee Deal

One analyst sees a potential ceiling to the company's consumer business.
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Symantec

(SYMC) - Get Report

shares took a substantial hit Thursday, when

AOL

announced it would begin giving away antivirus software.

AOL's move prompted Deutsche Bank Securities analyst Todd Raker to downgrade Symantec to hold from buy and the stock promptly moved south on heavy volume. In recent trading, shares of the antivirus maker were off $4.05, or 6.5%, to $58.15 a share.

A copy of

McAfee's

(MFE)

VirusScan Online will be included with Version 9 of AOL's proprietary software, and will be available to users of older versions willing to download it. AOL had been selling the security product, including updates, for $2.95 a month; McAfee sells it for $39.99 a year.

McAfee was also down in recent trading, shedding 31 cents, or 1.3%, to $23.11 a share.

The economics of the deal between the AOL service, a unit of

Time Warner

(TWX)

, and McAfee are unclear, said Rakar. McAfee, however, is scheduled to report financial reports later Thursday and will undoubtedly be asked to explain.

Raker said in a note to clients that he doesn't believe the deal will affect Symantec's December quarter, but longer term, "it could limit upside potential" in the consumer business. Noting that the stock has appreciated 51% since July, he said, "We believe further multiple expansion is unlikely and our new $58 price target is driven by a 30 times forward multiple off our current $1.92 EPS estimate for calendar 2005."

Deutsche Bank has done investment banking for Symantec and holds a short position in the stock.