This Security Software Company Offers Good Value
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Internet security has over the last decade or so increasingly become an important issue, as virtually all transportation of information and capital now takes place through this medium. A number of firms have been able to capitalize new forms of internet crime by offering comprehensive internet security solutions. Symantec (NASDAQ: SYMC) is an example of one of these companies, and aside from delivering strong earnings is also valued inexpensively at the moment.
Symantec is best known for its internet security solutions, which it provides to businesses and consumers worldwide. However, the firm also offers storage and systems management solutions. Founded in 1982, the company has 20,500 fulltime employees and a market cap of $14.41 billion. The stock is less volatile than its benchmark with a beta of 0.82 and is up nearly 28% in the last twelve months putting it near its 52-week high.
Earnings and Balance Sheet
Symantec has trailed the software industry somewhat in terms of EPS growth in the last few years, but has in the same period also done a good job of beating analyst expectations with especially healthy beats in Q1 and Q2 of 2013. In the Q2 2013 release, revenue was up 1% year over year and 5% after adjusting for currency translation. Net income was up 6% year over year and the operating margin also improved 6% to 18%. Finally, EPS was up 13% compared to the same period a year ago. An analyst with Morgan Stanley upgraded the stock to overweight this week, citing its attractive valuation and potential for big improvement in margins among other factors.
The company also has a healthy balance sheet, with just over $4 billion in cash. Total debt stands at $3.06 billion, which represents a total debt to equity ratio of about 60. Levered free cash flow is an impressive $1.61 billion, which means the company has plenty of cash to expand, take on more debt, or buy back stock. The company has also put its Altiris unit up for sale, although it expects to fetch less than the original $830 million spent on acquisition.
Valuations and Metrics
Symantec is currently valued at 13x earnings, a discount to the 16.82x industry average. The forward P/E is also enticing at 11.45x. The price to sales is on par with the industry at 2.12 but the return on equity is a convincing 24%. The stock looks cheaper than that of competitor Check Point Software (NASDAQ: CHKP), an Israeli firm known for its ZoneAlarm software. Check Point trades at 17.13x earnings and 14.14x forward earnings, and at a very pricey 7.54 to sales. However, this company has no debt whatsoever and $1.45 billion of cash on the books.
In the security software space, Symantec is well-established player. It is a profitable company with healthy earnings growth, and an enviable balance sheet. Currently priced at a discount to its competitors and the broader market, this software company appears to offer good value as well as growth potential.
DUJames has no position in any stocks mentioned. The Motley Fool recommends Check Point Software Technologies. The Motley Fool owns shares of Check Point Software Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!