Symantec Corp. (NASDAQ: SYMC) is looking to unlock more value in its plans to spin off its Veritas data-storage and recovery business, according to recent reports. The question remains of how this will affect the company. Credit Suisse thinks it might have the answer.
For some recent background information: Symantec shares rose in the after-hours Friday following the Wall Street Journal’s report that the cybersecurity and storage software firm was considering a sale of Veritas.
The report suggested that this unit could be valued at over $8 billion, according to “sources close to the matter.” At the same time, it added that Symantec has reached out to other tech companies and private equity firms about buying the business.
A split between the old Symantec and Veritas has been in the works for some time. It has also been said that taxes could be an issue in the sale.
Credit Suisse remained very positive on Symantec, with its Outperform rating and a price target of $30, implying an upside of 26% from current prices. Note that this is tied for the highest price target from analysts.
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The brokerage firm changed its forward looking earnings estimates due to currency headwinds:
- Fiscal 2015 lowered to $1.88 from $1.89
- Fiscal 2016 lowered to $1.80 from $1.92
- Fiscal 2017 lowered to $1.89 from $2.02
Despite the lowered estimates, Credit Suisse continues to expect Symantec’s stock to move higher, given that at least two potential bidders could exist for the spin-off of Veritas. Despite recent media reports, the firm does not expect a merger or acquisition to occur until after the spin-off.
According to Credit Suisse:
We estimate that Veritas could be valued near at least $8.8 billion (4.4x LTM EV/maintenance revenue), which would translate into an enterprise value for the parentco of $5.7 billion at the current stock price — equal to only 5.8 times our fiscal year 2016 earnings estimate (which we view as unsustainably low).
However the firm does not know how Symantec will value either parentco or spinco, respectively, in the spin-off process, but it has some ideas. Credit Suisse believes at least one of the two will be undervalued if Symantec’s stock remains at current levels, and therefore the firm expects Symantec’s stock to continue to move higher as the spin-off date draws near.
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Separately on a constant currency basis, Credit Suisse expects to see upside in Symantec’s margins, given the company’s restructuring plan to eliminate 10% of its headcount. From this alone, the firm estimates that Symantec will save $250 million in annual expenses.
Shares of Symantec were relatively flat at $23.84 in Wednesday trading. The 52-week trading range is $19.99 to $27.32, and the consensus analyst price target is $25.09.
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