Symantec Corp. SYMC is set to report third-quarter fiscal 2016 results on Feb 5. Last quarter, the company posted a positive earnings surprise of 2.9%. Let us see how things are shaping up for this announcement.
Factors to Consider
Symantec delivered mixed second quarter results, with its bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. The year-over-year revenues comparisons were unfavorable mainly due to the negative impact of foreign currency exchange rates.
Furthermore, continued investments to launch new and innovative products could impact margins in the near term.
It is worth mentioning that recently, in a joint effort, Symantec and The Carlyle Group CG agreed to revise the terms of the deal under which the latter will acquire the former’s Veritas business. Announced last year, the agreement is the biggest leveraged buyout deal in the U.S. Per the new agreement, Symantec will lower the selling price for Veritas to $7.4 billion from $8 billion agreed upon in August last year. Also, both the companies have raised the amount of offshore cash remaining with Veritas to $400 million from $200 million.
Selling Veritas reflects Symantec’s strategy of shifting its focus to the security market while lowering its dependence on antivirus.
Going further, investment in growth areas such as Enterprise backup, Storage Management and Security businesses are expected to drive the company’s long-term prospects. Moreover, Symantec’s restructuring initiatives and share buyback plans are expected to support the bottom line.
However, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from Intel and Microsoft, remain headwinds. The uncertainty over PC sales further adds to the woes.
Earnings Whispers
Our proven model does not conclusively show that Symantec will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Symantec is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 18 cents per share.
Zacks Rank: Symantec has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies, which are worth considering, as our model shows that they have the right combination of the two elements:
Baidu, Inc. BIDU, with an Earnings ESP of +11.25% and a Zacks Rank #2 (Buy).
MSCI Inc. MSCI, with an Earnings ESP of +1.70% and a Zacks Rank #3.
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