A few days ago our friends over at New Constructs released their Most Dangerous Stocks for June list and we couldn’t help but note that SYMC was added to the large cap list.

The stock has had a great short term rally since we published our research note on April 30th, highlighting the challenges the company is facing in their core market according to their customers.  We recommended it as a short but on a fundamental versus a trading basis.

With the stock up from $17 and change to about $21 we feel the short is looking more attractive.  Our price target remains $14.

The company will be hosting their analyst meeting on June 12th and we expect more general enthusiasm around the meeting since management is very good at telling analysts and investors what they want to hear.

Insiders have been selling heavily with no buying.  The CEO, John Thompson, has taken $3.5M out in May alone.

Sentiment on the name has improved but there continues to be room for more upside if management gets more analysts over to their way of thinking around the meeting.  Despite the recent stock move analyst community is mostly at a Hold (20) with 12 at Strong Buy/Buy and 1 lone Sell rating.

We’re currently short the name but secretly hoping for some further share appreciation and further confirmation of our concerns on the fundamentals.

Anyone long or short SYMC should read the research note above as it contains quite a bit of customer data that loudly suggests management is out of the loop on the fundamentals.

– Kris Tuttle

Tags: SYMC, Short Ideas, Analyst Meeting

We did start the post on SYMC yesterday by stating we had no idea what the quarterly report would hold.  Investors were happy with posted results and guidance.   From our perspective it only makes the potential downside more acute if they company does nothing to improve their steady performance decline in customer environments.  Even though we don’t play for the quarterly reports we still focus on them to compare and contrast them with our longer-term thesis.

The company started the report by reclassifying a large number of business segments to present a different view of the business to the market.  (Why would you do this in a fiscal Q4 versus at the beginning of the next fiscal year?)  In any case we’ve lived in company environments like Symantec where “results” often depend more on presentation than execution.  This was the case at IBM during the years they tried to ignore the substantial declines in their business in the twilight of the 80′s.

The full transcript is available here to skim. As one can see lots of the statements and answers are either obscure or self-serving.  There are plenty of references to “double-digit” growth and “our <fill in the blank> business is doing great” along with repeated references to the “record” quarter.  Management even gets away with a revisionist positioning of saying they have now posted five straight quarters of stronger than expected results despite lowing guidance with the September 2007 quarter.

Clearly international was strong for the company.  We were more than a bit surprised that nobody had much of a reaction to the fact that 6 points of the 13% YoY growth was driven by foreign exchange.  Unless we misunderstood the statement it appears that the entire growth in deferred revenue came from currency effects.  Leading analysts actually said that the growth in deferred revenue was strong.  Are they even listening to the information being presented?

That said we don’t find fault with the report per se.  The company has a strong mix of businesses and recent acquisitions like Vontu are indeed best-of-breed point products.   At the same time nothing has changed in terms of our thesis on the company and the stock.  Management will be driving the field force to deliver more growth in license revenue this year at a time that existing customers are increasingly dissatisfied with Symantec and expect very little to no spending increases with them.  It could be a very interesting year for the company and investors.  To the degree that international business and currency benefits remain strong, the fundamental weakness will be masked.

Based on the quarter and the guidance we would expect the presentations on the analyst and investor day on June 12th to be another powerful marketing event which will help stoke enthusiasm for what looks like a turnaround.

We main focused on execution which we continue to see as bad enough to jeopardize business results in the next few quarters. Management closed their call stating that F09 is going to be “their year.”

– Kris Tuttle

Tags: Symantec, SYMC

Symantec reports earnings after the close on Wednesday and we have no idea what it will be like.  What we do know is that the situation in the field for Symantec is going from bad to worse.

Our most recent report was produced in partnership with TheInfoPro which collects input from enterprise customers to understand fundamental technology shifts within IT.  The data for Symantec has been declining steadily for some time and has recently accelerated on the downside.  If the current trends continue Symantec spending intentions will suggest an actual YoY decline for the first time since data starting being collected back in 2003.

The root of the problem lies in the lack of execution between management vision and the company acquisitions and the customer.  Products haven’t been integrated.  The sales teams have suffered from lack of training and high turnover.   Customers are relating horror stories regarding technical support and customer service.

Our report details a bit more of the data and delves into valuation using typical approaches along with our own long-term valuation framework and the forensic accounting of New Constructs.  The net result is a fair value of about $14/share.

The only good news for shareholders is that the stock is already trading at a level where an acquisition by CA, HP or BMC would work.  That’s the only positive scenario we see now given that management hasn’t even acknowledged the depth of the issues, let alone start solving them.  (Dell is at least past the acknowledgement stage here and working on solutions.)

Based on what we see one would expect conservative guidance on Wednesday and an interesting Analyst Day on June 12th. 

– Kris Tuttle

Tags: Symantec, IBM, HP, TheInfoPro, NewConstructs