Gen Digital's Disappointing Quarterly Earnings Impact Stock Prices

Gen Digital, a provider of consumer-focused security software, has experienced a significant drop in stock prices following disappointing quarterly earnings. However, Wall Street analysts remain optimistic about the company's ability to reduce its debt.

As of Friday morning, the stock was down 16% at $20.

Although Gen Digital may not be a household name, its brands are well recognized. Norton cybersecurity software, LifeLock identity-theft protection services, and Avast antivirus software are among the company's notable offerings.

The company emerged in 2019 from Symantec's consumer business, as Symantec sold its enterprise operations to Broadcom and adopted the Symantec name. Subsequently, the business rebranded as NortonLifelock after the Broadcom deal and became known as Gen Digital in 2022 following a merger with Avast.

Gen Digital reported total revenue of $951 million for its fiscal third quarter, which ended on December 29. Although the figure represented a 2% increase, it fell slightly below the Street's consensus estimate of $956.2 million. The company's adjusted profits were 49 cents per share, missing expectations by a penny. According to generally accepted accounting principles, the company earned 22 cents per share.

Looking ahead to the March quarter, Gen Digital forecasts revenue between $960 million and $970 million, which is below the previous consensus forecast of $974 million. The company anticipates earnings ranging from 52 to 54 cents per share, while the consensus estimate is 53 cents.

For the fiscal year ending March 2024, Gen Digital expects revenue to range between $3.805 billion and $3.815 billion. Adjusted profits for this period are projected to be $1.95 to $1.97 per share.

Gen Digital Reports Strong Quarter with 4% Increase in Bookings

Analysts are optimistic about the future performance of Gen Digital, despite a slightly disappointing quarter. In a presentation for its quarterly earnings call, the company reported a 4% increase in bookings, bringing the customer count to an impressive 38.9 million.

RBC Capital analyst Matthew Hedberg believes that there is potential for better performance in the upcoming fiscal year. One key development he highlights is Gen Digital's unexpected $900 million tax refund. Hedberg suggests that this refund will be utilized to pay down debt, and the company will also focus on aggressive buybacks to boost per-share earnings. Hedberg has maintained a Sector Perform rating on the stock, with a target price of $25.

Morgan Stanley analyst Hamza Fodderwala also acknowledges that the quarter fell below consensus expectations due to payment delays from business partners. However, Fodderwala emphasizes that Gen Digital has still managed to surpass expectations by gaining an impressive number of new customers. Additionally, bookings are showing signs of improvement. Fodderwala shares Hedberg's sentiment regarding the tax refund, stating that it provides an opportunity for further debt reduction and buybacks. Fodderwala has maintained an Overweight rating on the stock, with a target price of $30.

Overall, analysts remain positive about Gen Digital's future prospects, citing favorable developments such as the tax refund and strong customer growth. While the quarter may have been slightly below expectations, there are clear indicators of improvement and potential for better performance in the coming fiscal year.