Expanding Cyber Safety, Privacy, And Wellness Will Open New Frontiers

Key Takeaways

• Expansion into new markets and partnerships will broaden customer base and drive international revenue growth.
  
• Integration and AI-driven tech investments aim to boost demand and enhance operating margins for future EPS growth.
  
• Integration challenges and competitive pressures could affect net margins, while foreign exchange and economic volatility pose risks to earnings stability.

Catalysts

Engages in the provision of cyber safety solutions for consumers.

• Gen Digital's strategic focus on expanding its Cyber Safety platform and trust-based solutions is expected to drive mid-single-digit growth in the Cyber Safety segment and high single-digit revenue growth in the trust-based solutions segment, impacting revenue positively.
  
• The integration of MoneyLion's financial wellness features into Gen Digital's offerings provides an opportunity to cross-sell to its existing 65 million paid customers, which could lead to an increase in revenue and potentially customer lifetime value.
  
• The company's expansion into 15 new markets with its privacy and identity products, coupled with partnerships in Latin America and other emerging markets, is poised to expand its customer base and drive international revenue growth.
  
• Gen Digital's investment in AI-driven technologies such as the Norton Genie scam protection is enhancing product efficacy, which can increase demand and lead to higher ARPU and revenue.
  
• Operational synergies and increased efficiencies following the MoneyLion acquisition are expected to improve operating margins, contributing to double-digit EPS growth in fiscal year 2026.

Gen Digital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gen Digital's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.4% today to 28.3% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $1.9) by about May 2028, up from $641.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, down from 24.7x today. This future PE is lower than the current PE for the US Software industry at 33.3x.
• Analysts expect the number of shares outstanding to decline by 1.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.07%, as per the Simply Wall St company report.

Gen Digital Future Earnings Per Share Growth

Risks

• Integration challenges with the recent acquisition of MoneyLion could lead to unforeseen costs and complexities, impacting net margins and earnings.
  
• Potential volatility in the financial wellness segment due to economic downturns could affect revenue growth from MoneyLion, impacting overall earnings.
  
• Changes in marketing channels, such as AI-driven SEO impacts, could lead to increased customer acquisition costs, affecting net margins.
  
• Increased competition in the cybersecurity and financial wellness markets could pressure pricing and margins, impacting revenues and net margins.
  
• Foreign exchange rate fluctuations could impact international revenues and operating margins, creating variability in earnings.

Valuation

• The analysts have a consensus price target of $30.706 for Gen Digital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $37.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $25.72, the analyst price target of $30.71 is 16.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.