How CyberArk Is Outgrowing Its Peers

By Chris Lange Published Aug 14, 10:10AM EDT

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As more cyberattacks are hitting the United States and companies within it, the need for protection has become increasingly important. CyberArk Software Ltd. (NASDAQ: CYBR) is one of the companies at the tip of the spear in terms of defending against these attacks, and a key analyst has issued a report calling for this cybersecurity company to rise even higher.

Wells Fargo upgraded CyberArk to Outperform from Market Perform and moved up its valuation range to $70 to $73 from $65 to $67. After a very strong second-quarter report, the firm took a couple of days to take a deeper look at broader trends and had a second follow-up call with Chief Financial Officer Josh Siegel. Wells Fargo found that the company’s billings growth and sales and marketing (S&M) efficiencies are exceeding peers by wide margin.

With recent breach headlines, Wells Fargo thinks enterprises are increasingly looking to expand privileged account management solutions. This is helping the company drive more customer wins, expand further with existing customers and upsell more products per customer. The firm also sees potential for improved government activity to be a source of incremental demand, and it feels very confident in second-half estimates. Lastly, the valuation has become more compelling, and also CyberArk’s free cash flow profile is underappreciated.

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The company’s 130% year-over-year billings growth meaningfully outperformed peers in the second quarter and will likely be twice the pace of any other security company in coverage. In addition, the company’s S&M efficiency is excellent, with each dollar of S&M driving $1.80 of absolute billings growth, roughly three times the group average. Wells Fargo thinks this shows that privileged account management is becoming a critical part of the enterprise security infrastructure and that companies are increasingly expanding privileged account security more broadly across the enterprise.

Wells Fargo detailed in its report:

CyberArk grew its customer base by 25% year over year in second quarter and new customers are buying more products on day one than they have historically. In addition, heightened awareness is causing existing customers to further expand same product deployments and there is the potential for product penetration to improve from 1.5 products / customer to 3 or more over the next few years. As a result, we think CyberArk should be able to maintain revenue growth in excess of 30%/year long term.

Wells Fargo also believes that recent government level data breaches — both at the U.S. Federal Office of Personnel Management and in the German Parliament — create heightened awareness for privileged account security, which could stimulate demand for CyberArk products. In fact the U.S. Federal Reserve’s chief information officer recently outlined four key steps that every federal agency should immediately undertake to improve its security postures. Of these four actions, two of them directly related to privileged account management.

Shares of CyberArk closed Thursday at $58.06 and opened Friday at $60.00, in a 52-week trading range of $22.12 to $76.35. The stock has a consensus analyst price target of $63.55.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.