Symantec consistently generates solid cash flow–typically equal to about 25% of sales. This stability enables it to invest steadily in new product development while supporting a solid financial profile. The firm’s security products are sticky with customers and enjoy the benefits of the widely recognized Norton brand. This business produces good margins on a solid base of recurring revenue.
Storage management products also produce a nice recurring revenue stream, but this segment is less attractive, as storage products are increasingly sold with proprietary management tools. Symantec has hit a rough patch recently, with growth stalling. The firm was built via a series of acquisitions over the past decade, as management was preoccupied with building a holistic provider of IT risk management solutions. Symantec has shifted its focus back to security in recent years and the pace of acquisitions slowed considerably, but the firm remains a collection of disparate product lines. New management is working to streamline product lines and improve efficiency in research and development and sales.
Symantec’s balance sheet is in solid shape. The firm has already parted with some noncore assets to raise cash and refinanced a convertible issue that matured earlier in 2013 well in advance, in mid-2012. Adjusted for the convertible repayment, the firm now carries $3.7 billion in cash against $2 billion in debt. At $2 billion, gross leverage will stand at about 1.1 times EBITDA. As part of its restructuring plans, Symantec announced that it aims to return 50% of cash to shareholders and instituted its first dividend. This ratio of cash return is consistent with the company’s practice in recent years. The remaining 50% of cash flow will be reinvested in the business.
Suggested Reading: Largest hedge funds in Europe