Probably the most alarming aspect of the continued rise in cybersecurity threats and attacks is the sophistication that current hackers and criminals have. From almost anywhere in the world they have targeted the highest security platforms with what sometimes seems like impunity. A new research report from UBS concurs and believes that cyber-criminals are only becoming more sophisticated. The analysts feel that combined with increasing attack surfaces, such a hostile threat landscape should sustain security software’s elevated priority within corporate and government information technology budgets.
The UBS team is focused on three top companies to buy in the space: FireEye Inc. (NASDAQ: FEYE), Fortinet Inc. (NASDAQ: FTNT) and Palo Alto Networks Inc. (NYSE: PANW). Despite some large upside moves, the analysts feel comfortable more upside lies ahead. It is important to remember that this time last year, some of these stocks were in the stratosphere, only to have been cut more than in half. After trading sideways to down, they have just started to make solid breakout moves to the upside.
Despite being on a tear recently, FireEye still down over 50% from the highs of near $100 printed almost a year ago. The UBS team believes that despite the stock’s giant 40% move so far in 2015, improving new product adoption, broader market coverage, increasing sales velocity and conservative guidance are all factors that should support recent upward estimate revisions.
The UBS analysts point to the company:
- Ramping sales productivity, capacity and distribution to what they feel is a large and underappreciated product portfolio
- Having greater mobility and endpoint mindshare and market traction in 2015
- Taking advantage of under and poorly served $10 billion managed service market, which they feel can be exploited
- Seeing health care, media and retail companies that continue being big spenders, with governments and the high-tech sector also showing upside this year
- Facing FaaS (framework as a service) under-penetration, where channel enablement and local language support should drive uptake
The UBS price target for this top stock to buy goes from $44 to $50. The Thomson/First Call consensus price target is $42.35. The shares closed Friday trading at $46.15, up over 4%.
Fortinet is one of the top security plays across Wall Street, and the UBS analysts remain very positive on the company after meeting recently with top executives, who themselves presented a very bullish outlook on the market and overall demand. In the research report numerous areas were cited as positive for the company, including:
- The large push into enterprise and OMP
- The impact on the recent U.S. port strikes and inventory management
- The new “Easy 4” pricing model released last month, which involves a new bundled product sales strategy
The UBS price target for the stock, which they feel remains very attractively priced, is $37. The consensus target is posted at $35.13, and the stock closed on Friday at $33.84.
Palo Alto Networks
Because Palo Alto has been absolutely on fire over the past year, it doesn’t quite hold the value proposition of the other two stocks. The company is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats, and it boasted staggering year-over-year billing growth.
Unlike fragmented legacy products, its security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content. The UBS analysts feel that the company will benefit from being one of the few cybersecurity companies that provides a differentiated Endpoint solution (“traps”), which is integrated into Palo Alto’s NGFW appliance and platform.
UBS has a $143 price target, while the consensus target is $133. Shares ended trading Friday at $141.61.
There is no turning back for this industry now. Every big-time hack into high-security companies and government agencies just presses the pedal down more. With the stocks far more suitable for aggressive growth accounts, investors should consider scaling capital in now on a partial buy and looking for any pullback to add more stock.