It never fails. Individuals, businesses and government become complacent about the need for stringent cybersecurity protection, and then a massive breach like the one on Colonial Pipeline happens and tens of millions of people can’t buy gasoline. Jet fuel and distillates are also cut-off, and there is basically nothing to be done until the situation is remedied. As always, guess what stocks are right back in the spotlight? Cybersecurity software.
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Over the years, the massive hacks at Adobe, eBay, Equifax, Microsoft Exchange Server, Yahoo and more have done huge damage. Like now, there is always a vow for more diligence. The Biden administration enacted new executive orders focusing on the government taking aggressive steps toward Zero Trust adoption. The executive order is also very firm about implementing multifactor authentication at government agencies, and many across Wall Street feel that is critical to an effective Zero Trust plan.

Zero Trust architecture is an alternative security model that addresses the fundamental flaw of traditional strategies that data only needs to be protected from outside of an organization. The Zero Trust model views data security through a new lens, enabling parameters that dictate access and restrictions internally as well.

While the hack at Colonial does not immediately mean orders will fly through the doors of the top companies, it has refocused those in leadership positions on the crucial need for data and hardware security. We screened the BofA Securities cybersecurity software research universe looking for the top stocks that are rated Buy and found four that offer big upside to current price levels and solid growth prospects going forward. Remember that no single analyst call should ever be used as a basis to buy or sell a stock.

CrowdStrike

This cybersecurity stock has pulled back recently after a stellar run and is offering an outstanding entry point. CrowdStrike Holdings Inc. (NASDAQ: CRWD) is a leader in the endpoint protection platform (EPP) market. EPP solutions help protect enterprises’ internet-connected devices from cyberattacks, and there is a market shift from signature-based on-premises solutions to cloud-based platforms that use machine learning.

CrowdStrike’s platform is one of the few 100% cloud-based architectures and is uniquely positioned to displace incumbents with its platform breadth, including advanced detection and remediation capabilities.

Many analysts feel that the company is well positioned for sustainable success in a market in which the share leaders have failed to innovate. Outside of core endpoint security, most expect CrowdStrike can continue to drive strong multi-module adoption, leading to increased stickiness and better long-term positioning.

BofA Securities has a $255 price target on the shares, and the Wall Street consensus target is $254.14. Friday’s last trade for CrowdStrike stock was reported at $190.64.

CyberArk Software

This company has less than a $5 billion market cap, which may make it a prime takeover target. CyberArk Software Ltd. (NASDAQ: CYBR) is a pioneer of a new layer of IT security solutions that protect organizations from cyberattackers that have evaded the network perimeter.

CyberArk’s solutions secure organizations’ critical assets, dubbed privileged accounts, which are the keys to databases, industrial control systems, servers and applications, all which house sensitive data. CyberArk’s software is focused on protecting these accounts, which are highly targeted in cyberattacks to disrupt networks or steal sensitive data.

The analyst said this about recently reported earnings:

CyberArk reported strong first quarter revenues and earnings per share of $112.8 million and $0.9 per share versus Wall Street’s $109.8 million and $0.4. Second quarter guidance was soft. SaaS transformation gaining momentum; a solid pipeline and secular tailwinds should drive long-term growth. We remain positive on CyberArk’s platform and reiterated Buy.

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BofA Securities lowered its $190 price target to $160. The $174.14 consensus target also compares to Friday’s $121.50 closing print for CyberArk Software stock.

Splunk

This is a top Wall Street pick in the industry. Splunk Inc. (NASDAQ: SPLK) provides a software platform for collecting, storing, indexing, searching and analyzing machine-generated data, such as log files and configuration files, which are prevalent in every type of IT system, device and application.

Splunk technology is potentially applicable and disruptive in several market segments, including IT operations, security and compliance, and business intelligence. These market segments are collectively worth $28 billion today.

Wall Street analysts agree that the company offers the de facto standard for security information and event management. That is an area heavily focused on in the Biden executive order. Splunk also offers orchestration solutions for security operations, a fast emerging category of products.

The $180 BofA Securities price target compares to the slightly higher $189.69 consensus target. Splunk stock closed on Friday at $116.22.

Zscaler

This remains one of the hottest stocks and is a top pick at BofA Securities. Zscaler Inc. (NASDAQ: ZS) is a leader in the cloud-based Secure Web Gateway (SWG) market. These gateways help protect enterprise internet traffic, and there is a material market shift from legacy appliance-based approaches to cloud services. Zscaler’s products are uniquely architected to address the higher-growth cloud or software-as-a-service (SaaS) portion of the market, and Zscaler’s platform is designed to apply additional security features outside of SWG to all enterprise traffic over time.

The analysts love the company and said this when it reported back in February:

Zscaler reported one of its strongest quarters to date with revenue and billings of $157 million and $232 million beating Wall Street’s $148 million and $192 million Billings growth accelerated further to 71% year-over-year versus 41% year-over-year in fiscal 2020. Net retention rate ticked up to 127% from 116% in 2020. Accelerating sales investments in the second half on heels of significant investments in the fourth quarter and the first half of 2021should help offset difficult comps.

The BofA Securities has set a massive $260 price target, while the consensus target is $237.71. Zscaler stock closed at $165.34 on Friday.

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Clearly the need for cybersecurity is increasing every year. These top companies offer investors solid ways to play the industry in a multitude of areas. Most importantly, they all trade at levels that offer solid entry points and have massive upside potential, in addition to being a very solid long-term aggressive portfolio.

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