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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


August 27th 2010 Symantec
Nasdaq Symbol: SYMC
Industry: Anti-virus Software
Price as of 8/27: $13.97

The broader markets are back to the July lows following a continuing weakness in the economic data. The Dow dropped below 10,000 this week as many stocks and sectors are now at 52 week lows. The techs have been weak even as a number of deals are starting to be announced. This week Dell and HPQ entered a bidding war to buy 3Par Technology. 3Par's stock is up 3 fold in the last two weeks. Not bad. Intel announced a deal to buy McAfee Software two weeks ago for $7.7 billion and then lowered their guidance this week. That's not a good sign. This week we'll feature McAfee's largest rival Symantec. Symantec like most techs have seen their business revive in the last year, but the stock has pulled back with some recent weakness in sales. But even though business has slowed, Symantec's valuation seems pretty attractive trading for less than 10 times earnings and a potential takeover target for anyone looking to compete with Intel.
Back at the end of July, Symantec reported earnings of $284 million, or 35 cents a share in line with earnings estimates. Revenue came in at $1.43 billion up 2% adjusted for currency-exchange rates. Revenue from Symantec's consumer segment, which represents 33% of the total revenue base, grew 6% from the same period last year. The Storage and Server Management segment, which makes up 36% of total revenue, fell by 5% while the Security and Compliance segment was up by 1%. So Symantec is seeing some dampening demand from corporations and their IT departments, which has been a common theme. Consumer demand remains strong. Looking forward, Symantec gave conservative guidance. Second-quarter sales guidance is now set at between $1.445 and $1.465 billion, well below Wall Street's estimate of $1.53 billion. Excluding items, Symantec forecast earnings between 27 cents a share and 28 cents a share. Analysts surveyed by Thomson Reuters had forecast earnings of 34 cents a share.
Intel's preannouncement this week confirmed that business has slowed, but hopefully most of the bad news is priced into the markets. Symantec is trading for 9.8 times earnings and 9 times next years' earnings. The stock also trades for 1.7 times sales and 2.3 times book value. For a comparison, McAfee got bought out for 3.2 times sales, 12.7 times book value, and 16 times earnings. That would translate into a stock value for Symantec around $24 to $27 a share or a double from where it currently trades. No one should buy a stock solely on hopes that the stock gets bought out, but it should indicate that the stock's valuation is good. One Symantec director bought 20,000 shares at the beginning of August. When business picks up once again, the stock should perform better.