A massive cybersecurity deal in the software space, along with a flurry of earnings results, sent shares of major technology and telecommunications companies in different directions during a rocky trading week on the U.S. stock market.
The S&P 500 and the Dow Jones Industrial Average tumbled to record lows this week, stoked by ongoing fears about global trade.
Semiconductor-devices maker Broadcom Inc. grabbed headlines when it announced Aug. 8 its intention to buy the enterprise-security business of Symantec Corp., including the Symantec name, for $10.7 billion in cash. The news comes after Broadcom previously sought to buy the cybersecurity company outright, but the two were reportedly unable to agree on a price.
The deal, which is anticipated to close in Broadcom's fiscal first quarter of 2020 beginning Nov. 4, 2019, should add over $2 billion in revenue to Broadcom's business and generate in excess of $1 billion of run-rate cost synergies within 12 months following close, Broadcom said.
Symantec CEO Richard Hill said on an earnings call the same day of the deal's announcement that his company's tie-up with Broadcom will help the organization better execute on its sales and marketing goals in its enterprise-security business.
Analysts were largely optimistic about the deal, though raised some concerns about how Symantec's history of weak growth could impact the deal's chances for success.
Wedbush Securities analyst Daniel Ives in an Aug. 9 research note said the combination should enable Broadcom to become a much more powerful player in the software sector, adding a "1-2 punch along with its chip empire." But Symantec's historic growth challenges in the company's enterprise-security segment remain a "lingering worry" for Broadcom investors, Ives added.
Likewise, Evercore ISI analyst C.J. Muse said in a note that while the strategic rationale around the deal were strong, Symantec's enterprise-security asset remains "low quality" and continues to lose market share.
Symantec shares spiked after the deal's announcement, while Broadcom's declined slightly. Around midday Aug. 9, Symantec shares were trading up 8.65% for the week, at $22.98 apiece. Meanwhile, Broadcom stock was trading at $275.15, down 1.21%.
Turning to telecommunications, CenturyLink Inc. shares stumbled this week as the company's second-quarter earnings results disappointed Wall Street.
CenturyLink on Aug. 7 reported that consolidated revenue for the company in the second quarter was $5.58 billion, compared to $5.90 billion in the year-ago period.
The company posted a net loss of 56,000 consumer broadband customers from the end of the March quarter, with approximately 4,750,000 customers. Consumer revenues declined by 8% year over year to $1.42 billion, as growth in broadband revenues was offset by declines in voice and other — particularly video — revenues.
Net income for the quarter rose to $371 million, or 35 cents per share, up from $292 million, or 27 cents per share, in the prior-year period. The S&P Global Market Intelligence consensus EPS estimate for the period was 31 cents on a normalized basis and 28 cents on a GAAP basis.
In a note obtained by Barron's, J.P. Morgan analyst Philip Cusick downgraded CenturyLink shares to "underweight" from "neutral," and lowered his price target to $10 from $14 following the results. The analyst said CenturyLink's consumer and small business revenues were even more "challenged" than he had hoped.
Guggenheim analyst Mike McCormack, also in a report gathered by Barron's, reiterated a "neutral" rating and $10 price target on CenturyLink stock.
McCormack noted that since the company's first-quarter results, the shares have underperformed the broader market, and any investors who are hoping for improving top-line results for CenturyLink will be disappointed.
CenturyLink shares were trading at $10.45 apiece around midday Aug. 9, down 13.06% from their Aug. 2 close.
In media, Walt Disney Co. shares dipped slightly after it missed both top- and bottom-line expectations for its fiscal third quarter.
Disney on Aug. 6 posted net income attributable to the company of $1.76 billion, or 97 cents per share, down from $2.92 billion, or $1.95 per share, in the year-ago quarter. The S&P Global Market Intelligence consensus EPS estimate for the just-ended quarter was $1.74 on a normalized basis and $1.45 on a GAAP basis.
Revenue for the quarter was $20.25 billion, up 33.0% year over year from $15.23 billion, but below consensus expectations of $21.40 billion, according to S&P Global Market Intelligence.
Disney Chairman and CEO Bob Iger during an earnings call emphasized the company's focus on pivoting toward more direct-to-consumer offerings, including its Disney + streaming service. Marketing for the service will start ramping up later this month, ahead of its launch on Nov. 12, Iger said.
Disney stock was trading at $137.22 midday Aug. 9, down 3.17% for the week.