UBS Has 3 Must-Own Cybersecurity Software Stocks

By Lee Jackson Published Feb 23, 10:05AM EST

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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.

FireEye

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%.

ALSO READ: 5 Tech Stocks to Buy With Exposure Outside the U.S.

Fortinet

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.

ALSO READ: 4 Top Semiconductor Stocks to Buy Now

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.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.