GEN - Gen Digital: Limited Cash Flows Provides Limited Upside

2024-06-16 13:59:38 ET

Summary

• Gen Digital Inc has become one of the largest cybersecurity and antivirus companies following the mergers of Norton, Avast, and others in 2022.
• Despite revenue growth, cash and cash equivalents declined while debt rose, leading to a low cash-to-debt ratio.
• Our financial projections show challenges in maintaining its future financial programs, and we expect he company's limited cash flows to be a drag on its valuation.

Gen Digital Inc. ( GEN ) is a systems software company that offers a wide range of cybersecurity and antivirus products and services, including those from Norton, Avast, LifeLock, Avira, AVG, ReputationDefender, and CCleaner, following the merger of NortonLifeLock and Avast in 2022. In our, previous analysis of GEN, we expected the merger between NortonLifeLock and Avast to create significant revenue and cost synergies as well as boost its market share in consumer security market to 42.6%. However, margins fell short of our expectations post-acquisition with operating margins of 31% in 2023 against a forecast of 49.5%.

Despite the company’s revenue growth increasing over the past five years following a series of M&A activities, its cash and cash equivalents have declined over the same period, dropping from $2.3 bln in 2019 to $0.8 bln in 2023. In contrast, its debt (total debt excluding account payables) has risen by $5.8 bln during the same period from $7.6 bln to $13.5 bln....

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