Symantec Corporation’s (NASDAQ:SYMC) negative outlook for net income has analysts forecasting a meaningful decline of -89.17% annualised over the couple of years ahead, but it’s necessary to take a moment and think through this appraisal. Those invested in the stock should contemplate the factors that are causing this decline, as there are certain implications that can impact on shareholder return. To get a preliminary understanding, I will try to evaluate Symantec’s margin behaviour to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for SYMC’s returns relative to its competitors.See our latest analysis for Symantec
Understanding SYMC’s earnings with profit margin
In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. SYMC’s profit margin will help us understand the extent of this ability, as well as identify the forces behind earnings expectations.
Margin Calculation for SYMC
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = US$1.15b ÷ US$4.85b = 23.75%
The past five years have seen Symantec’s margin contract, with net income declining at -29.40% on average, which was more than the average fall in revenue of -10.13%, indicating that that the company’s decline in the top line has also corresponded with a smaller portion flowing out as earnings. SYMC’s most recent margin of 23.75% appears to follow this trend, indicating that the earnings decline has likely been driven through an increase in cost alongside the the decline in revenue.
Understanding what could be driving Symantec’s future earnings
Forward looking projections suggest margins will further the previous contraction, with 2.43% in expected annual revenue growth and earnings expected to fall at -89.17% on an annual basis. This suggests the future earnings decline is driven further by an increase in costs rather than a dramatic fall in revenue potential, which is squeezing the incremental amount of net income that is retained from the forecasted revenue increase. Nonetheless, those watching the stock must know a contracting margin can hold various implications on the company’s performance depending on how it operates, which makes further research very important.
For SYMC, I’ve compiled three key aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is SYMC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SYMC is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of SYMC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!