NortonLifeLock Merging With Avast to Expand Reach Within Consumer Security Market; Maintain $21 FVE

We are maintaining our $21 fair value estimate for no-moat NortonLifeLock after announcing its intention to merge with fellow consumer cybersecurity firm Avast. The news follows NortonLifeLock recently acknowledging rumors of Avast combination talks, and we believe this merger is in line with NortonLifeLock’s plan to use mergers as a growth accelerator with a focus on extracting overlapping costs. The deal puts Avast’s enterprise value between $8.6 billion and $9.2 billion, depending on how Avast shareholders elect to receive a majority stock or cash option. We updated our model with the assumption that the merger occurs in the middle of 2022 as expected, helping the company rapidly expand its revenue growth rate and achieve its reiterated adjusted earnings target of $3 per share in the coming years. Nevertheless, we still remain more cautious about the consumer security market and ability to drive sustainable long-term growth amid a competitive pricing environment, and see shares slightly overvalued.