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Why investors are betting on this cybersecurity stock

Internet of Things

With cyber attacks surging worldwide, corporate and government demand for digital security is high — and only going higher, most experts say.

"Digital attacks on entities are increasing in term of volume and sophistication," notes Scott Kessler, senior equity analyst at CFRA. Indeed, one in 131 emails last year was malicious, up from one in 220 previously, according to Symantec (SYMC), which provides security products and services to help corporations and governments cope with cyber attacks. It notes that 689 million people around the world were victims of cybercrime last year, and that every two seconds someone is victimized by identity theft.

So shares of Symantec have been on the rise, climbing to more than $31 a share from around $20 a year ago. CFRA's Kessler upgraded the stock to a "strong buy" from "hold" when it recently dipped due to concerns related to quarterly results posted in May, along with longer-term worries about growth and execution. Kessler, however, sees "considerable potential for improving fundamentals and performance, especially in light of corporate transaction and management changes completed since the beginning of last year."

Kessler believes Symantec, through a variety of offerings, addresses the needs of companies and government to combat the surging tide of cyber attacks. The company estimates the total potential market for its products and services at $75 billion — $67 billion for enterprise security and $10 billion for consumer digital safety. In the 2017 fiscal year that ended March 31, Symantec generated $4 billion in revenue. 

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To bolster its products and performance, Symantec has undergone a significant transformation since the beginning of last year, notes Kessler, including the $4.7 billion purchase of Blue Coat, a provider of advanced web-security solutions for global enterprises and governments. And in February, Symantec spent $2.3 billion to acquire LifeLock, a provider of identity theft protection services for consumers and companies that serve consumers. 

Zacks Equity Research has urged its clients to add Symantec to their portfolio, noting that the stock's momentum should continue after rising sharply year-to-date. The investment research outfit ranks the stock No 2 among the stocks it rates as a buy, with an estimated long-tern earnings growth rate of 10.3%.

Zacks points out that Symantec's stock remains attractive despite its sharp rise since last year, trading at a price-earnings multiple of 27.5, significantly lower than the Zacks I.T. industry average of 36.3 times. Zacks notes that Symantec provides a wide range of content security and information-backup services. Moreover, the company's mobile- and cloud-security offerings are gradually gaining market acceptance, according to Zacks. 

One of its recent acquisitions is Skycure, an Israel-based company that complements Symantec's services to protect against mobile threats and malwares across multiple platforms like Apple iOS, Microsoft Windows, and Google Android.

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At Barclays, equity analyst Saket Kalia has upgraded Symantec to "overweight," noting that the company has become more competitive in the enterprise market. He has a price target of $38 a share for the stock.

CFRA's Kessler expects gross margins to the 2019 fiscal year to be around 84% to 85%, a level that hasn't been seen at Symantec since the 2013 fiscal year. He says EBITDA margins widened notably in the 2016 and 2017 fiscal years but he sees a narrowing in the current 2018 fiscal year, given continuing investments and the pricey purchases of Blue Coat and LifeLock. But Kessler sees further margin expansion in the 2019 and 2020 fiscal years.

Kessler figures Symantec will earn $1.78 a share in fiscal 2018, rising to $2.03 in fiscal 2019. It posted a loss in fiscal 2017. He has a 12-month price target of $36 a share, seeing revenue rising 24% in fiscal 2018, up from a 16% gain in fiscal 2017.

So for investors concerned about cyber attacks and hackings, Symantec might help provide relief — and rewards.   

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