You knew it was coming. The question was who was going to make the move. If one industry has had an outstanding year and run, it has been cybersecurity, and Monday the analysts at UBS said that buying some of the stocks was akin to buying San Francisco real estate now.
A UBS report on Monday was clear on what the analysts did not like, but little was said about the stocks the firm does like. The bottom line is that the UBS analyst Brent Thill is probably right. Some of these stocks have gotten way ahead of themselves, spurred along by almost daily cyberattacks on big name entities. In an interview on CNBC, Thill was still very positive on the field as a whole, but just stated that the valuations were frothy.
Most of the attention Monday focused on the downgrade of FireEye to Neutral from Buy, but UBS actually raised the price target to $55 from $50. In another even deeper cut, UBS cut Symantec to an outright Sell from Neutral, and pushed the price target to $22. The UBS team remains on the sidelines with a Neutral rating on Checkpoint and an $87 price target. While they do acknowledge the attractive valuation and solid balance sheet, they say that company will need sustained product and billings growth for them to become more positive on the stock.
Two companies are still rated Buy at UBS, and they both appear to have a very bright future.
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Fortinet
This company continues to be well-liked on Wall Street. Fortinet Inc. (NASDAQ: FTNT) offers fast, secure and global cybersecurity solutions that provide broad, high-performance protection against dynamic security threats while simplifying the IT infrastructure. They are strengthened by the industry’s highest level of threat research, intelligence and analytics. Unlike pure-play network security providers, Fortinet can solve organizations’ most important security challenges, whether in networked, application or mobile environments, be it virtualized/cloud or physical.
Fortinet shareholders cheered in April as the company posted earnings that beat first-quarter expectations, forecast revenue during the quarter was higher, and management raised its year outlook above consensus. Wall Street also cheered as the company said the tone of business is very strong, and CEO Ken Xie believes demand for network security software solutions is the strongest “in 20 years.”
Many bullish analysts have cited the discount to the peer group is deserved, given the lower growth profile and increased investment squeezing margins. But the UBS team points to what they see as improving execution, competitive footing and very compelling financials, which make the stock the firm’s top growth at a reasonable price, or GARP, cybersecurity pick.
The UBS price target for the stock is raised from $43 to $49, and the Thomson/First Call consensus target is $42.12. Shares closed Monday at $43.55.
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Palo Alto Networks
This company has been a momentum trader’s dream over the past year. Palo Alto Networks Inc. (NASDAQ: PANW) also has consistently ranked highest with the company’s Wildfire product, which was the favorite in the Advanced Persistent Threat (APT) space in a survey among value added 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, their security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content.
Palo Alto Networks security platform has new features that were introduced recently that help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products, and instead expand breach prevention capabilities and boost operational efficiency. This was a point that many Wall Street analysts say is becoming increasingly critical.
The UBS team says that they feel that the company offers the best-positioned platform with multiple drivers behind what they and others on Wall Street see as continued market share gains.
UBS raises its price target on the stock to $206 from $180, and the consensus target is set at $182.81. The stock closed trading Monday at $184.04.
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While the UBS team says the do not see “binge buying” at companies for cybersecurity products, they do acknowledge that there is the potential for a multiyear cycle with very solid growth potential.
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