Like a computer virus, the bad news for Symantec Corp. investors came all at once.
Shares of the cybersecurity software company plunged 35% in Friday morning trading to put them on track for their biggest one-day decline in 17 years and second-biggest loss in 29 years as a public company. The move came after management said late Thursday that the company’s audit committee was conducting an internal investigation into claims made by a former employee[1]. Also hurting matters was that Symantec SYMC, -33.36%[2] issued a weaker-than-expected forecast for the current fiscal year and quarter.
At least five analysts downgraded their ratings on Symantec’s stock, according to FactSet, and MarketWatch counted one more who was not in FactSet’s database. Just four of the 30 analysts who cover the stock rate it a buy, while 23 rate it a hold and three call it a sell, according to FactSet.
“The fog created by an internal investigation of the company led by the audit committee of the board, with no semblance of detail provided to investors, overshadows everything else in Thursday’s Q4 and FY 2018 earnings,” wrote BTIG analyst Joel Fishbein, who downgraded the stock to neutral from buy. He was troubled by the fact that Symantec canceled analyst call backs and declined to take questions during the company’s earnings call.
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Fishbein also pointed to the company’s lower-than-expected quarterly and annual outlook, which came as somewhat of a surprise to him given that Symantec seemed to be making some progress with the enterprise segment of its business.
“The Q1 and FY19 guidance, which imply a ~20% decline for Q1 and ~10%-11% decline for FY2019, make us wonder what, beyond accounting changes, is going on in the business,” he wrote.
Symantec’s investor relations chief said at the beginning of the company’s earnings call that “financial results and guidance may be subject to change based on the outcome of the audit committee investigation.”
That disclosure gave Piper Jaffray analyst Andrew Nowinski pause. “Despite the strong results, we believe this investigation creates too much uncertainty to have confidence in management’s FY19 guidance, as this could affect historical results and future demand trends,” he wrote. Nowinski downgraded Symantec shares to neutral from overweight and lowered his price target to $24 from $32.
MoffettNathanson analyst Adam Holt argued that trends already aren’t great at Symantec and “may get much worse” due to the internal investigation. “In our experience, they generally do, especially with highly acquisitive businesses,” he wrote. Such investigations, whether on an internal, external, or SEC level, “almost never finish completely without issue.”
Holt was also struck by...