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Why Is Moody’s Optimistic about Symantec?

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Moody’s ratings on Symantec

On February 12, Moody’s Investors Service confirmed its “Baa3 senior unsecured” rating on Symantec (SYMC) and changed its outlook to “stable” from “rating under review.” Moody’s earlier downgraded the rating on Symantec due to the ongoing investigation related to its accounting practices and weak revenue forecasts.

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Symantec’s deleveraging plan

The confirmation of the Baa3 rating shows that Moody’s is optimistic about Symantec’s progress in deleveraging. Cybersecurity firm Symantec recently decided to pre-pay a $600 million unsecured term loan, which was due in August 2019 using its surplus cash. With this prepayment, Symantec’s total debt would be $4.5 billion. Also, Symantec has decided to raise the share repurchase authorization by $500 million to $1.3 billion to reward its shareholders. Moody’s expects Symantec’s adjusted debt-to-EBITDA ratio to decline towards 3x in fiscal 2020 driven by improvements in revenue, operating margins, and cash flow.

Moody’s foresees revenue growth for Symantec in 2020

Moody’s has given a stable outlook to Symantec on the expectations that the company would deliver low to mid-single digit revenue growth in fiscal 2020, which ends in March, along with improved operating margins and cash flow. In fiscal 2020, Symantec is expected to benefit from recent restructuring initiatives and its transition to a subscription model in the enterprise segment.

Improved performance in the Enterprise Security segment drove the company’s revenues in the third-quarter fiscal 2019 results ending January 31. Revenues totaled $1.211 billion in the third quarter, which exceeded analysts’ expectations by 2.6%, and was marginally higher than the year-ago quarter’s revenues of $1.209 billion. The company has also increased the revenue forecast for the segment for fiscal 2019 backed by its sales capacity and cyber defense leadership.

Symantec’s peers Oracle (ORCL) and IBM (IBM) have also beat their revenue expectations in the December-ending quarter. However, software giant Microsoft (MSFT) missed estimates on revenues in the same period.

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