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Disclaimer The authors (“we,” “us,” “our”) are not licensed investment advisors and do present the following investment recommendation and analysis as anything other than our opinion. This analysis may be helpful for anyone currently researching Symantec Corporation (“Symantec,” ticker SYMC) or the Security Software & Services (“SS&S”) industry, but should not be construed as formal investment advice. All financial data are either SEC-reported figures or estimates that we or Yahoo! Finance calculated, current as of 3/4/16. Recommendation Symantec is a global leader in the development of cyber security software and cloud-based security and information management services. Our analysis of Symantec indicates that its equity, which trades at $16.62 per share as of the close of 3/4/16, may be undervalued by upwards of 45% due to the market underestimating the company’s present capacity to expand its business and grow revenues via competitive acquisitions and product development, as well as the market failing to properly price in the value of shrinking costs and sharply increasing global demand for cyber security products. Because of these factors, we recommend taking a long position in Symantec with the expectation that its share price will rise to an estimated $24.14 over the next five years, with an approximate range of $22-26 per share as forecasted by our Discounted Cash Flows (DCF) model. Additionally, even if demand for cyber security software declines and Symantec’s revenues grow at a slower rate than expected, there is still a roughly 36% upside in investing in its stock based on our valuation. With an excess of $5.5 billion in cash due largely to the demerger of Veritas and the addition of several important minority stakeholders (specifically Silver Lake Partners and Elliott Management Corporation) in recent months, Symantec is positioned to expand its business in both the markets it currently leads and in the markets in which it has a smaller presence, such as mobile and virtualization. The effects of acquisitions and aggressive product development – both of which have been the primary drivers of Symantec’s revenue growth in the past – in all of these markets will be further augmented by global SS&S sales increasing by an estimated $95 billion over the next five years1, in addition to Symantec reducing operating expenses by $400 million by 2018. Taken together, we expect these catalysts to drive Symantec’s share price up to its estimated fair value of approximately $24. Though Symantec holds a dominant position within the security software market, there are a few key investment risks involved in going long on its stocks. Specifically, the cost, complexity, and risk of future acquisitions, lower than expected returns on research and development projects, fluctuations in quarterly earnings, large dividend payments, and incorrect assumptions in our valuation model may result in Symantec’s stock not rising in value as we have predicted. However, these risks can be mitigated by taking long positions in companies whose shares negatively covary with Symantec’s stock, by buying protective put options, or by placing a stop-sell order on your investment.

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Company Background Symantec is one of the world’s preeminent developers of cyber security software, leading the global markets for endpoint security, email security, data loss prevention, and SSL certification, while also offering cloud hosting for security and information management services. The core segments of Symantec’s business include: Symantec Research Labs, which develops and commercializes cyber security software; the Security Technology and Response unit, the “finger on the pulse of the Internet security threat landscape”4 that researches, tracks, and analyzes current cyber security threats; Symantec.cloud, the cloud hosting service for securing and managing information used in email, web, and instant messaging; and Symantec Services, which provides consulting support and education services to clients. Symantec has relied on both developing new products and acquiring competitors to grow its business. One notable acquisition that Symantec has made was the 2005 purchase of Veritas Software Corporation, an information storage and management company that Symantec demerged and sold to The Carlyle Group for roughly $8 billion in January of 2016. This, along with a $500 million investment by Silver Lake Partners and a minority equity stake taken by Elliott Management Corporation, have left Symantec with over $5.5 billion in cash and cash equivalents that Symantec’s management has explicitly committed to using to grow its business in the near future, especially in markets in which it does not currently dominate. From 2013 through 2015, revenues have decreased by a total of about $272 million, though at a decreasing rate each fiscal year and with an increasing operating margin. Investment Thesis Symantec is the world’s largest vendor of cyber security software (Q3 2015) with a 17.2% share of the market2, and so its stock is part of the SS&S industry within the Technology sector (as identified by the Yahoo! Industry Browser). Its closest competitors by market cap strictly within this space are Brady Corporation, ManTech International Corporation, and Check Point Software Technology Ltd (“Check Point”), whose stocks trade at $25.95, $28.87, and $82.68, respectively, as of the time of writing. Of these competitors, only Check Point has a larger equity value than that of Symantec – about $15.2 billion vs. $10.8 billion, using diluted shares outstanding. As we have shown, Symantec’s equity currently trades at a price lower than those of all three of its closest competitors, which we argue is due to the market failing to properly price in the following factors:

1. Symantec’s August 2015 sale of Veritas, its information management unit, has left the company with an excess of $5 billion in cash. This demerger, along with the additional cash and industry guidance provided by a recent $500 million investment by Silver Lake Partners and a minority equity stake taken by Elliott Management Corporation, will allow Symantec to now focus on growing its core cyber security business via strategic acquisitions and

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increased product development. More specifically, Symantec has committed to expanding its position within the markets it currently leads – such as in data loss prevention, which it currently dominates with a 47% share – as well as in markets in which its footprint is much smaller, such as mobile, cloud, and virtualization. As our DCF model forecasts, even if revenues don’t grow over the next two years and then grow by a mere 1% three years after that, Symantec’s fair price per share should be roughly $24.14 (with a range of roughly ± $2), not $16.62 as it currently is priced.

2. Government and commercial cyber attacks are expected to continue rising over the next several years, leading to an imminent increase in global demand for cyber security and information management products. This will lead to an increasing global demand for cyber security software, which is estimated to grow sales from $75 billion in 2015 to $170 billion by 20201. Furthermore, the Software as a Service (SaaS) industry is expected to grow by 20% over the next two years, with 20% or more of all software sales coming from SaaS by 20183; thus Symantec, one of the world-leaders in cyber security and cloud computing software, is poised to increase revenues in the near future due to increasing demand for its products – the benefits of which will be amplified by the $400 million in expense reductions the company has pledged to make over the next two years.

3. In the last year, Symantec has extended its share repurchase program to $2.6

billion, buying back $500 million of shares in January 2016 alone. In our view, this demonstrates that Symantec’s management is highly bullish on future revenue growth, suggesting that the company has definitive plans to expand its business. This assertion is further supported by Symantec stating that it is currently “leverage[ing] internal R&D, acquisitions and partnerships to accelerate [Symantec’s] long-term strategy,” specifically such as by “investing in future growth areas such as mobile, virtualization and SaaS.”5

All three of the above factors are directly related to Symantec’s valuation, and should serve as catalysts to drive Symantec’s stock price towards the target value estimated by our DCF model. And, even if only one or two of these catalysts do indeed occur, they are still different enough from current market expectations that an investment in Symantec would potentially yield an upside regardless. Furthermore, as our model’s sensitivity tables demonstrate, realistically there is very little potential downside risk to such an investment.

Catalysts Again, the primary catalysts that we believe will drive up Symantec’s share price within the next few years are:

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1. An excess of cash, industry-specific guidance from private equity partners, and management’s explicit commitment to investing in R&D and acquisitions

2. A global increase in demand for cyber security products coupled with

Symantec’s increasing operating margin

3. Aggressive share repurchasing, which will improve market sentiment towards Symantec by signaling impending company growth

Though we believe all three of these catalysts will lead to share price growth, catalysts 1 and 2 are probably more important than catalyst 3 in terms of valuation. If our thesis that Symantec will use its excess of cash to aggressively invest in product development and M&A is correct, then we argue that it highly likely that the company’s revenue will start growing – albeit at a modest pace, and after continuing to contract slightly during the next two fiscal years – beginning at least in Forward Year (FY) 3. If revenues were to grow by 1% over FY 3-5, this would result in about $162 million in additional revenue and about $78 million in EBIT (also based on assumed changes in EBIT margin) over FY 1-5. This translates into an increase of over $7 per share from the current price of $16.62, as highlighted in the sensitivity analysis below.

We calculated a discount rate of 7.7% for future cash flows (FCF), and assumed a terminal FCF growth rate of 1%. As the table shows, for every additional 1% increase in revenue growth in FY 3-5, the share price increases by roughly $0.50. This means that, even if Symantec’s future investments result in revenue decreasing at a rate of 1% in FY 3-5, our model estimates that there still is an upside of over $6 per share. In catalyst 2, we postulate that Symantec’s impending $400 million reduction operating expenses over the next three years will result in an EBIT margin of 19% over FY 3-5 (note that the margin for 2015 is about 18%, and has risen by almost 2% over the past three fiscal years). As demonstrated below, Symantec’s equity once again seems to be undervalued by over $7 per share, with an estimated minimum of $4 in upside even if the EBIT margin were 1% lower than the 2015 rate and almost $9 if the margin were 21%.

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However, there are a number of factors that may hinder revenue and EBIT margin growth over the next five years, which we will cover in the Investment Risks section. Finally, we argue that Symantec’s $2.6 billion share buy-back program will increase investor excitement in the company’s growth prospect, which will increase the stock price as demand for the stock increases. By reinvesting in itself via stock repurchases, Symantec is clearly signaling to investors that it believes its equity to be undervalued; and, once the company completes more of these buy-backs, investors will likely notice in larger numbers and then begin buying Symantec’s shares at a higher rate, thereby driving the price up. In fact, we believe that investor and analyst sentiments towards Symantec have been far too bearish in recent years, due mostly to incorrectly placing too much weight on the importance of marginally declining revenue while at the same time not properly valuing the revenue growth that is likely to occur. Because of this, we argue that the market has not properly priced in Symantec’s prospects for substantial near-future growth, and in fact has overly discounted the share price. Once market sentiment towards Symantec begins changing favorably (which will be spurred by the aforementioned factors), the company’s stock price should start rising towards its target value. Evidence for this extreme, if not irrational, overemphasis being placed on Symantec’s declining revenue can be found in a poll of 14 analysts taken by Yahoo! Finance, shown below. In it, the analysts expected, on average, that Symantec’s revenue would decline by almost $3 billion from 2015-2016 – or plummet by about 44.5% – and to stay at this level at least through 2017.

We believe it is important to note that, while revenue did decrease by about 2.5% from 2014-2015, a further decline of almost 45% is extremely unlikely, based on relatively static fundamentals of Symantec’s business and the catalysts that we have analyzed. Via Yahoo! Finance

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Valuation In order to estimate a fair value for Symantec’s share price, we performed public company comparables (“public comps”), DCF, and sensitivity analyses. Our public comps used a two-year time period, while our DCF model used a five-year period. The public comps we used for comparison were identified using the Yahoo! Industry Browser. Within, the SS&S industry, we selected the companies with a market cap of at least $1 billion. Our public comps analysis made the following assumptions:

1. Revenue Growth Rate: for each company, we analyzed how their revenues changed over the past three years, and used the trend we found to come up with conservative growth (or contraction) estimations for FY 1 and FY 2

a. Brady Corp.’s revenues will grow by 1% in FY 1, and then by 2% in FY 2

b. Check Point’s revenues grow will be 1.5% in FY 1, and then 1% in FY 2

c. ManTech’s revenues will decrease by 10% in both FY1 and FY2

2. EBITDA Margin: we calculated the EBITDA of these three companies ourselves, assuming that EBIT = Operating Income and that EBITDA = EBIT + D&A. We used the same method for estimating EBIT and D&A growths that we used to estimate revenue growth

a. Brady Corp.’s EBIT will decrease by 10% in both FY 1 and FY 2, and its D&A will decrease by 11% in both FY 1 and FY 2

b. Check Point’s EBIT will increase by 4% in both FY 1 and FY 2, and its D&A will not change in either FY 1 or FY 2

c. Man Tech’s EBIT will decrease by 10% in both FY 1 and FY 2, and its D&A will decrease by 0.3% in both FY 1 and FY 2

What we were most interested in determining from the public comps analysis was an appropriate long-term EBITDA multiple for Symantec. As the table below shows, the median forecasted EBITDA multiple for its competitors were 17.2x and 16.5x in FY 1 and FY 2, respectively, with the corresponding multiples for Symantec over these two years estimated to be 10.9x and 10.2x, respectively.

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Key Conclusions: conservatively, an appropriate terminal EBITDA multiple for Symantec would fall within the range of 6-10x; therefore, in our DCF model we used a multiple of 8x in calculating the terminal FCF value. In the following sensitivity table, we show the effect that changing the terminal EBITDA multiple within the 6-10x range has on Symantec’s share price.

Key Conclusions: an increase of 1% in the EBITDA multiple leads to a roughly $1.80 increase in the share price, at our current cost of capital rate of 7.7%. Thus, even if the terminal EBITDA multiple were only at the bottom of our estimated range (i.e. 6x), there is still about a $4 upside per share. More strikingly, if the multiple were actually at the top of our range, there is an estimated upside of more than $11 per share. Our DCF analysis assumed the following:

1. Revenue Growth Rate (rr): this was perhaps the most critical assumption made in our DCF model. We made our estimations based on a combination of factors, specifically the slowing revenue decline over the past three years and the expectation of revenue growth in FY 3-5 due to the catalysts described in the Catalysts section

a. FY 1 rr: -1.5% b. FY 2 rr: -0.5% c. FY 3 rr: 1.0% d. FY 4 rr: 1.0% e. FY 5 rr: 1.0%

2. EBIT Margin: as previously described, Symantec’s EBIT margin has

increased from 16.0% in 2013 to 17.7% in 2015. This trend of decreasing operating expenses, coupled with the fact that operating expenses will be further reduced by $400 million by 2018, led us to estimate that the EBIT margin would slightly increase over the next two years (18.3% FY 1, 18.5% FY 2), and then reach a stable rate of 19% in FY 3-5

3. Market Return Rate: we used the simple annual rate of return of the

S&P, which is 8.53%. This was conservative in our opinion, because had we used the conventional 7% market return estimation, our target share price would have been higher than it is currently (i.e. because the market risk premium in the CAPM would be smaller)

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4. Risk-Free Rate: because our DCF forecasted revenues over five years,

we used the 5-Year Treasury Yield as a proxy for the risk-free rate. The Treasury Yield as of 3/4/16 was 1.33%

5. Beta: we used β = 1.01162 for Symantec, which was calculated by Yahoo! Finance

6. Market Value of Equity: we used $10.840 billion, which was calculated in the Inputs section of our model by multiplying basic shares outstanding by the current share price of $16.62

7. Market Value of Debt: we used $2.096 billion, which was the total debt

for 2015 found in the consolidated income statement included in the company’s 2015 10-K filing

8. Cost of Debt: this was calculated by dividing the 2015 interest expense ($79 million) by total debt ($2.096 billion), which yielded 3.77%

9. Cost of Capital: to calculate this, we used the CAPM with the market return, risk-free rate, and beta previously discussed

10. Tax Rate: we used 20%, which was Symantec’s 2015 tax rate

11. Terminal Growth Rate: we assumed a terminal growth rate of 1% The tables below show the three primary components of our DCF model, in which we calculate the present value of forecasted free cash flows, the company’s cost of capital discount rate, and the fair share price, respectively.

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Key Conclusions: the sensitivity analyses shown previously in the Valuation and Catalysts sections were derived from this DCF model, and show that Symantec’s estimated stock prices do not fluctuate greatly from 1% changes in the revenue growth rate, EBIT margin, or terminal EBITDA multiple – usually increasing by only about $0.50 for each 1% increase. One of the most critical determinants of these values, however, was the calculated discount rate of 7.7%. While we believe this rate to be accurate, other sources have calculated different figures (e.g. Guru Focus reported Symantec’s WACC to be about 8.37%, as of 3/4/16). This discount rate seems to have a somewhat large impact on the variance in the forecasted share prices in our model, lowering their estimated values by about $1.80 for each 1% increase in the cost of capital. Thus, it is important to note that our estimated share prices are highly dependent on Symantec’s cost of capital, and that further research should be done to try to maximize the accuracy of this value. Investment Risks The primary risks to our thesis are:

1. Presumed mergers and acquisitions in the near future proving to be extremely complex and expensive, or failing to close altogether

2. New R&D projects yielding lower than expected returns, causing unanticipated fluctuations in quarterly earnings

3. Large dividend payments

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4. Incorrect assumptions in our valuation model We will address each of these risk factors and suggest how to mitigate them below. Cost, Complexity, and Risk of M&A Deals Mergers and acquisitions are inherently expensive and resource-intensive processes, and if a large and well-publicized deal were to fail or be exceedingly costly, the revenue growth predicted by catalyst 1 would likely be eliminated. As our revenue growth sensitivity analysis shows (see the Catalysts section for the full table), this would cause the target share price to be closer to the $21-23 range as the company reduces its future revenue expectations. However, due to the size and cost of many M&A transactions, it is possible that this range could be even lower and in fact not be much different than the current share price. While a target price within the $21-23 range is still several dollars above the current price of $16.62, the market may react negatively to the news of an expensive or failed deal and cause the stock price to fall. In order to hedge this risk, an investor could buy protective put options on Symantec’s stock at a strike price of perhaps 5-10% lower than its current price in order to mitigate potential losses due to negative market reaction. Project Failures Causing Earning Fluctuations Symantec’s planned product expansions in growing markets such as mobile, virtualization, and SaaS may prove to be excessively expensive or yield lower than expected returns. Like was the case with M&A deals, this would have an impact on the company’s future revenue growth and could change the target share price to $21-23, or even lower. Again, news of unexpected deviations in earnings may cause investors to lose confidence in the company and sell their shares, the effect of which could be buffered by buying protective put options on Symantec’s stock. Alternatively, to mitigate price-volatility risk, an investor could take a long position in another tech company that is well established and stable, such as IBM. Large Dividend Payments Symantec has over $5.5 billion in cash and cash equivalents, which means that the company can issue large dividends to its shareholders. If this were to happen, the share price would fall by roughly the same amount as the dividend, which would negatively affect the equity value of a position in the company. For example, in the days before this writing, Symantec was trading at a price in the range of roughly $19-20; however, after issuing investors a dividend of $4 per share, the share price dropped to around its current price of $16.62. However, a decline in share price due to a dividend issuance doesn’t imply a negative change in the company’s fundamentals or its ability to grow future revenues.

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Incorrect Model Assumptions Finally, we cannot fully preclude the possibility that some of the assumptions of our valuation models were not 100% accurate. Though we strived to be consistent and deliberate in our calculations and only used financial information from reputable sources (for the most part, SEC EDGAR filings), it is possible that some of our assumptions – most importantly revenue and EBIT growth rates and the terminal EBITDA multiple – were too bullish; if so, our target share price would be unrealistically high. Furthermore, because the technology sector is highly cyclical, emotional investors could wildly affect the actual revenue growth rate, which would nullify many of our DCF assumptions. Whereas strong earnings reports and revenue growths from tech companies greatly attract investors, negative earnings usually lead to wild swings in the prices of tech shares. However, to help counter negative speculation, Symantec is strengthening its position within the security software space while also diversifying its product offerings in other markets. Worst Case Scenario The absolute worst-case scenario to this investment would be that everything in our analysis is incorrect, from our valuation assumptions to our expectations of a growing cyber security market, and more. Assuming lower revenues, margins, and terminal growth, this would imply a share price of around $17-20, which is still higher than the current market price. Therefore, we still recommend taking a long position in Symantec, as there seems to be upside in almost every scenario. However, as of the February 2016 10-Q filing, Symantec’s total Assets less its total Liabilities are about $5.4 billion, which equates to a stock price of roughly $8.27; but, subtracting the company’s Intangibles and Goodwill from its total Assets results in Tangible Assets of about $2.75 billion, which means that there is at least some Balance Sheet protection. Once again, our analysis suggests that a long position in Symantec has a large potential upside with relatively little potential downside. To hedge against any possible risks, an investor could buy protective put options, take a second long position in another large software company, or invest in a company in a different sector that targets a completely different market or geographic. Notes We would like to thank Brian from Mergers & Inquisitions for his sample DCF model, which we adapted for this analysis, as well his helpful video tutorial on stock pitching, which we used as guidance. We also welcome any and all feedback or critiques on this informal stock pitch.

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References 1. Global SS&S sales are expected to grow by an estimated $95 billion over the next five years:

http://cybersecurityventures.com/cybersecurity-market-report/ 2. Symantec is the largest global vendor of cyber security software (Q3 2015), with a 17.2% share of the market:

http://cybersecurityventures.com/ibm-security-report-q3-2015/ 3. The Software as a Service (SaaS) industry is expected to grow by 20% over the next two years, with 20% or more of all software

sales coming from SaaS by 2018: https://www.idc.com/getdoc.jsp?containerId=249834 4. The “finger on the pulse of the Internet security threat landscape”: https://www.symantec.com/about/corporate-profile/technology 5. Symantec is “leverage[ing] internal R&D, acquisitions and partnerships to accelerate [Symantec’s] long-term strategy,” and is

“investing in future growth areas such as mobile, virtualization and SaaS.”: https://www.symantec.com/en/uk/about/profile/business.jsp