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Critical Comparison: Symantec Corporation (SYMC) vs. Viavi Solutions Inc. (VIAV)

Symantec Corporation (NASDAQ:SYMC) shares are down more than -24.13% this year and recently decreased -1.25% or -$0.27 to settle at $21.29. Viavi Solutions Inc. (NASDAQ:VIAV), on the other hand, is up 17.51% year to date as of 07/19/2018. It currently trades at $10.27 and has returned -2.84% during the past week.

Symantec Corporation (NASDAQ:SYMC) and Viavi Solutions Inc. (NASDAQ:VIAV) are the two most active stocks in the Security Software & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect SYMC to grow earnings at a 10.56% annual rate over the next 5 years. Comparatively, VIAV is expected to grow at a 10.00% annual rate. All else equal, SYMC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 18.87% for Viavi Solutions Inc. (VIAV). SYMC’s ROI is -0.60% while VIAV has a ROI of -0.50%. The interpretation is that VIAV’s business generates a higher return on investment than SYMC’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. SYMC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.29. Comparatively, VIAV’s free cash flow per share was -0.01. On a percent-of-sales basis, SYMC’s free cash flow was 3.72% while VIAV converted -0% of its revenues into cash flow. This means that, for a given level of sales, SYMC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SYMC has a current ratio of 1.20 compared to 1.60 for VIAV. This means that VIAV can more easily cover its most immediate liabilities over the next twelve months. SYMC’s debt-to-equity ratio is 1.13 versus a D/E of 1.07 for VIAV. SYMC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SYMC trades at a forward P/E of 11.96, a P/B of 2.66, and a P/S of 2.72, compared to a forward P/E of 17.38, a P/B of 3.07, and a P/S of 2.84 for VIAV. SYMC is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. SYMC is currently priced at a -28.89% to its one-year price target of 29.94. Comparatively, VIAV is -13.41% relative to its price target of 11.86. This suggests that SYMC is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. SYMC has a beta of 0.75 and VIAV’s beta is 1.09. SYMC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. SYMC has a short ratio of 1.70 compared to a short interest of 4.89 for VIAV. This implies that the market is currently less bearish on the outlook for SYMC.

Summary

Symantec Corporation (NASDAQ:SYMC) beats Viavi Solutions Inc. (NASDAQ:VIAV) on a total of 10 of the 14 factors compared between the two stocks. SYMC is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, SYMC is the cheaper of the two stocks on an earnings, book value and sales basis, SYMC is more undervalued relative to its price target. Finally, SYMC has better sentiment signals based on short interest.

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