Symantec Sees More Spending on Security

EDWARD MARACCINI
PORTFOLIO MANAGER
JOHNSON ASSET MANAGEMENT

COMPANY: Symantec
TICKER: SYMC (Nasdaq)
PRICE: $16.07 (as of 4 p.m. yesterday)
52-WEEK RANGE: $15.66-$24.38
MARKET CAPITALIZATION: $16.77 billion

Edward Maraccini is a portfolio manager at Johnson Asset Management. Symantec is a security and storage software company. Mr. Maraccini spoke to David Dalley of The New York Sun about why increases in corporate spending on data security make Symantec an attractive investment.

What does Symantec do?

They are a provider of security software. They make Norton Internet security products, antivirus software, etc. The company is divided into two equal segments - security and storage. Twenty-five percent of their products are geared to the consumer market, and the rest is corporate.

Why do you like it?

Well, in terms of IT spending, we think - and we've seen this confirmed in a number of surveys - that security is going to get a very large share. Symantec is well-positioned on the enterprise side and on the consumer side. They have the no. 1 market share in the consumer space, and they're about four times the size of their nearest competitor. They have 50 million-plus paying subscribers right now. Symantec estimates that 35% of consumers don't even have security software, and we really think that in the future security software isn't really optional.

Why do you think there will be an increase in corporate IT spending?

Businesses have a lot of cash on their balance sheets, and security/storage specifically are very mission critical applications. They're a necessity. So of IT budgets, security software will definitely get its fair share. And storage requirements are growing every day.

What are the fundamentals like?

Its valuation is pretty attractive at about 16 times forward earnings, versus the sector at 22 times. It has about $3 billion in cash on the balance sheet and no debt. It generates a lot of free cash flow and can use it to enhance shareholder wealth, probably through share buybacks.

What do you think the stock is worth?

The five-year multiple has been around 22 times and large-cap tech stocks generally tend to trade at around 22 times. We don't like to set price targets, but a multiple of 20 seems reasonable and that would put the stock at around $23, which gives it around a 33% upside.