Credit Suisse cuts profit estimates, price target of Symantec

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By Balasubramanyam Seshan | July 30, 2010 11:09 PM EST

Credit Suisse lowered Thursday its earnings estimates of security software maker Symantec Corp. as the company reported relatively lackluster first quarter results. Symantec reported first quarter EPS of $0.35 and revenue of $1.43 billion, compared with consensus estimate of $0.35 and $1.47 billion.

“Symantec’s revenue, deferred revenue, and operating margin were below consensus estimates-driven primarily by weakness in the Storage and Server Management segment, which missed consensus estimates by $25 million, as the company stated that many deals slipped into the September quarter as sales cycles lengthened,” said Philip Winslow, an analyst at Credit Suisse.

License revenue declined sequentially 26.6 percent, significantly worse than the analyst’s estimate of a 7.7 percent decline. Although Symantec's June quarter reinforced the analyst’s belief that its recent product launches would allow Symantec to better compete for market share, Symantec's Storage Foundation product line continued to falter during the June quarter.

Going forward, Symantec's operating margin guidance for the September quarter falls more than 400 basis points below consensus expectations, due to higher OEM fees, higher software-as-a-service royalties, the impact of foreign currency, and the write-down of the acquired deferred revenue from VeriSign's authentication business.

The brokerage lowered its 2011 EPS estimate to $1.32 on revenue of $5.97 billion from $1.45 on revenue of $6.18 billion. The brokerage also reduced its 2012 EPS estimate to $1.56 from $1.70 and its 2013 estimate to $1.79 from $1.84.

“While we had been encouraged by the company's ability to exceed license revenue expectations and contain expenses for the prior three quarters, Symantec's Storage Foundation business and our confidence in management's ability to consistently execute took steps backward. We believe that our revised estimates are near trough, and we view downside risk from aftermarket trading levels as rather limited given valuation,” said Winslow.

The brokerage reiterated its Outperform rating on shares of Symantec, while lowering its price target from $22 to $16.50, but upside beyond this level is questionable given Symantec's inconsistent execution.

Symantec shares closed Thursday down 11.18 percent at $13.03 on the Nasdaq.

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