Security Software Stocks Still Red Hot as Threats Increase

In a new report, the analysts at Cowen once again have surveyed value-added resellers to see what product is selling the best, and who’s who in the cybersecurity software pecking order. The analysts point out that for the first time in the Cowen survey’s history, none of the respondents believe that pricing has gotten much better. Some 42% of the respondents think it has gotten worse since last fall. Despite seeming bad, that is actually a reflection of significant increases in sales and marketing investments made by some of the leading pure-play firewall vendors.

Cowen covers these five stocks in the space: Check Point Software Technologies Ltd. (NASDAQ: CHKP), FireEye Inc. (NASDAQ: FEYE), Fortinet Inc. (NASDAQ: FTNT), Palo Alto Networks Inc. (NYSE: PANW) and Splunk Inc. (NASDAQ: SPLK).

Check Point Software Technologies

Despite showing up well in the latest Cowen survey, Check Point did not do as well it did last fall. It did place well in the advanced persistent threat (APT) category, with 38% of the market share. The company has continued down the path of its Software Blade strategy and is arguably more candid about its installed base advantage, where it will look to continue to consolidate product features within its platform and provide customers a superior cost of ownership.

Cowen rates the stock at Outperform and has an $84 price target. The Thomson/First Call consensus price target is posted at $85.97. Shares closed trading on Thursday at $82.49.

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FireEye

FireEye continues to grow, and the Cowen team thinks it may have resolved its channel conflict with Mandiant, yet its overall performance was somewhat mixed in the survey results. The company did garner 30% of the APT category, and other Wall Street analysts are very bullish on the prospects.

Earlier this year, FireEye announced the new release of FireEye Email Threat Prevention Cloud, which adds the traditional email security features of anti-spam and antivirus protection to its advanced threat detection capabilities.

Cowen has the stock rated Market Perform with a $39 price target, and the consensus target is higher at $43.35. Shares ended trading Thursday at $38.66.

Fortinet

Some 23% of the resellers who were surveyed believed Fortinet can gain significant enterprise market share over the next year. That is up from 16% in the survey conducted last fall and represents a sizable percentage jump for the company.

Fortinet is well liked on Wall Street, and analysts have pointed to specific reasons for the bullish posture:

1. The large push into enterprise and OMP
2. The impact of the improved inventory management
3. The new “Easy 4” pricing model released earlier this year, which involves a new bundled product sales strategy.

Cowen has the stock rated Market Perform, with a surprising $31 price target. The consensus price objective is again higher, at $35.96. The stock was trading at $34.39 as Thursday’s trading came to a close.

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Palo Alto Networks

A momentum trader’s dream over the past year, Palo Alto Networks continues to show up well with resellers. The company was reported to have the highest percentage share in the highly competitive firewall bake-offs at 42%. It also ranked highest with the Wildfire product, which was the favorite in the APT space among the resellers with 43%.

The company is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyberthreats, and it boasted a 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 Cowen rating for the stock is Market Perform, with a $165 price target. The consensus target is $163.78. Shares closed trading Thursday at $141.81.

Splunk

This company appears to be on the rise with the Cowen team, and some of the retailer survey data gives a good indication why. A very large 26% of the resellers surveyed believe the company is the best positioned in the industry to capitalize on customer interest in security analytics, an area that could price to be gigantic in the years to come.

Another solid item for investors is that Splunk was one of the companies that, in the survey last fall, resellers pointed to as having an extreme amount of current momentum. It provides the leading software platform for real-time Operational Intelligence. Splunk software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices.

The Cowen rating for the stock is Outperform, with an $84 price target. The consensus target is posted at $79.93. The shares were changing hands at Thursday’s closing bell at $59.23.

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Clearly the scope of security importance has gained huge traction. Though pricing is stable to lower, the sheer number of products being sold looks to be increasing, and increasing fast. This most likely will be an important technology silo for years to come.