Symantec
Prospers From Virus Threats
By Patrick McKeough, editor
Wall Street Stock Forecaster
Symantec Corp. (Nasdaq SYMC $43; WSSF Rating: Average) makes security software that insures that computers are safe, productive and reliable. It also makes a range of other programs that make computers more efficient. Symantec's best-known product is Norton AntiVirus, the number one selling business software.
Code Red More Than Hype
In
July, a new computer virus called `Code Red' attracted a lot
of attention. Code Red is a type of virus called a `worm' that
attacks server computers running the Microsoft operating system.
Unlike most viruses, a worm can spread to other vulnerable computers
without any human interaction to trigger it. The Code Red worm
launches denial-of-service attacks against targeted Web sites.
It takes control of other computers that it has infected, and
uses them to simultaneously attack Web sites. The sudden traffic
surge can overwhelm a Web site, forcing it to shut down.
Code Red is the latest
example of the vulnerability of the Internet. Many companies
now do a large portion of their business over the Internet, and
an attack on them could cause catastrophic damage. Corporate
sales are now the biggest part of Symantec's business. They accounted
for 65% of revenues in the latest fiscal year, up from only 35%
a year earlier. While many companies are cutting back on new
technology spending as the economy cools, spending on security
software is still growing strongly.
Acquisitions Fuel Growth
In the last five years (fiscal years end March 31), revenues rose from $472.2 million in 1997 to $944.2 million in 2001, or 14.9% compounded annually. Profits rose at a compound annual rate of 24.7%, from $43.2 million or $0.78 a share in 1997 to $175 million or $2.35 a share in 2001. Much of this growth came from acquisitions, including last year's purchase of AXENT Technologies, Inc. AXENT specializes in software that prevents electronic intruders from accessing a company's computers and stealing information. The purchase also helps Symantec build its highly profitable consulting business, since AXENT gets 30% of its revenues from consulting.
XP Should Boost Viruses and Sales
In
the three months to June 30, Symantec's sales rose 1.2%, to $228.0
million from $225.4 million a year earlier. Earnings before one-time
items fell 28.9%, to $33.9 million or $0.44 a share from $47.7
million or $0.60 a share, due to slow sales to consumers and
negative foreign currency effects. Consumer sales should get
a boost later this year when Microsoft launches its new Windows
XP operating system, prompting users to upgrade their anti-virus
and utility programs. XP's launch may also spur new viruses.
The company is virtually debt free, and had cash of $8.07 a share at June 30. It now trades at 19.0 times the $2.26 a share it's likely to earn in fiscal 2002, and at 2.3 times its book value of $18.39 a share.
Symantec is still our #1 buy.
Editor's Note: Patrick McKeough is editor of the Wall Street Forecaster, 250 Liston Rd., Suite 700, Buffalo, NY 14223, 1 year, 12 issues, $99. Includes the weekly (48 or more times per year) phone/email Hotline message.
