On Monday morning, analysts at Barclays reiterated their Overweight rating and $26 price target on shares of NortonLifeLock (NLOK).
The analysts believe NortonLifeLock will do well when it reports fiscal Q2 results for three reason: web traffic to buy.norton.com continues grow thanks to more promotional activity, this is the last quarter with stranded costs, and even though the stock has lagged after the recent sales of convertible securities, the analyst believe this is a good entry point more than a negative signal.
Web traffic means your website is getting the attention it needs. Over the past few quarters, web traffic has increased by approximately 11%. Although some analysts were worried last quarter about how much more NLOK was available to grow with such high numbers, the analysts feel confident in their 50k net add estimate for 2Q. In addition, NLOK has also been giving many promotions that help the website gain traffic. NLOK will also have bigger pools up for renewals of their service for the first time starting next quarter.
NortonLifeLock had 95% of the stranded cost removed as of last quarter, which makes Q2 the last to remove the small percentage left. Analyst expects NLOK will get to $1.50 in run-rate EPS in Q3, which gives Q3 a clean start.
Not to mention, NLOK stock lagged after the sales because Silver Lake and Bain sold out of the majority of their convert positions. This resulted in the stock being down ~6% since the last earnings release, which the analysts feel provides an attractive entry point since they expect net adds to beat and fiscal year 2021 EPS estimates to go up.
Lastly, NLOK competitor, McAfee, has also released great numbers with its S-1 filing, with the analysts noting that McAfee has seen “ (1) 16.6M direct subscribers with an ARPU of around $5-6 dollars, which are both lower than NLOK’s given this is pure-play antivirus, and does not have identity protection like NLOK; (2) McAfee has historically had a much larger presence in the OEM channel whether it be laptop sales bundled with free trials or telecom carrier deals, and that shows with an additional 14.5M subscribers at a very small royalty-based ARPU – NLOK has largely exited this channel given its impact on margins; (3) the consumer business here had been growing high single digits and adding subscribers for several quarters now – since NLOK’s prior strategy as part of SYMC was maximizing profitability at the expense of growth, this is not surprising.”
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