Gen Digital Earnings: Solid Start to Fiscal 2025 as Customer Retention and Profitability Tick Up

We have maintained our $21 per share fair value estimate for no-moat Gen Digital after the firm kicked off fiscal 2025 with a set of solid financial results, almost entirely in line with our estimates. As a consumer-facing cybersecurity player, Gen is more susceptible to macro headwinds, with individuals more prone to cutting their security spending as inflation eats into their paychecks. Despite this pressure, we remain impressed by the firm’s ability to eke out additional operating leverage from its business, providing investors with continuous improvement in profitability despite the tepid sales expansion. As we think of the long term, however, we think Gen’s exposure to the commodity-like consumer security market is a structural barrier preventing it from building an economic moat around its business. With shares trading slightly up after hours, we continue to view Gen’s shares as overvalued. For investors seeking cybersecurity exposure, we’d recommend wide-moat Fortinet, a high-quality security vendor currently trading in the four-star territory.