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Technology Stocks : Symantec (SYMC) - What does it look like?
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To: Keith Zhang who wrote (423)12/11/1996 10:48:00 PM
From: Dr. J   of 2069
 
Recent rise in SYMC is driven by the recent stream of product upgrade announcements; good timing by SYMC, but not exactly earth-shattering.
Based on P/S, this was a cheap s/w stock at 9-11 (ps=1.2), but is looking more normal at 15-16 (ps=1.8). My sell target is $20, based on PS of 2.4 (s/w stock average).

Why is PS so low? Because SYMC's margins are horrible (EBIT of 7%); they spend 50% on Sales and Marketing which is out of line with ADBE, ORCL and others. According to IR, after-tax PM goal is 15% which in my view is totally unrealistic. Compare to McAfee, which has the benefit of building from a completely different business model: EBIT is more like 50%.

So why do I like SYMC? Because margins have nowhere to go but up. SYMC is moving to more online selling of s/w. They are huge in the Java market (Cafe), and have a good stream of Internet related products which leverage the Norton name.

I believe product upgrade story is built in to current price; for further movement, we'd have to see improving margins - according to IR this is not likely until March quarter of 1997.

One further question: does anybody think Borland is a possible acquisition target for SYMC? It has good complementary technology, is relatively cheap, and SYMC is growing principally by acquisition right now.
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