Top Merrill Lynch US Cybersecurity Stock Picks for Secular Thematic Gains

While much of the report is dedicated to larger macro themes and portfolio allocations, Merrill Lynch usually has a sector feature or two worth review. This particular review is how cybersecurity is now a top global risk today. The firm also has several cybersecurity stocks it likes, and 24/7 Wall St. has focused on the U.S. aspects of the report.

Merrill Lynch’s report further showed that there have been 80 million to 90 million cybersecurity events per year, and 70% or so go undetected. The firm shows how cyberattacks are now the primary source of economic attacks against governments and of intellectual property theft, with the average cost of cybercrimes for U.S. companies reaching a record $12.7 million in 2014 and with a total cost to the global economy being up to $575 billion annually.

Merrill Lynch’s thematic strategist is Sarbjit Nahal, and he has created a list of so-called Primer Picks in cybersecurity. These are also covered by Merrill Lynch’s global research fundamental analysts, and they were rated as Buy at the time the review began in September.

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24/7 Wall St. has pulled out the featured names, and we have included the more updated price target from the analysts if they have changed. Again, these are just the U.S.-based companies listed in the October RIC report that are set to benefit from cybersecurity themes.

Barracuda Networks

Barracuda Networks Inc. (NYSE: CUDA) was updated in coverage back on September 30 after the company’s shares were batted on guidance. Merrill Lynch called it “bruised, but not broken” after the billings outlook was light. Their take on Barracuda is that execution issues in EMEA/APJ regions drove the majority of weakness. The firm maintained its Buy rating, but lowered its price objective to $30.00 from $42.00 in the call.

Barracuda shares were last seen trading at $19.17, with a consensus analyst price target of $28.20 and a 52-week trading range of $14.77 to $46.78.
FireEye

FireEye Inc. (NASDAQ: FEYE) also was featured in threat protection in the October RIC Report. On October 7, Merrill Lynch reiterated its Buy rating on FireEye but lowered its price objective to $50 from $60. Merrill Lynch believes that FireEye’s addressable markets could potentially triple in size by 2019, which would imply roughly $1.5 billion or so by 2019.

Shares of FireEye were trading at $31.30 on Tuesday. The stock has a consensus analyst price target of $50.59 and a 52-week trading range of $25.45 to $55.33.

Fortinet

Though Fortinet Inc. (NASDAQ: FTNT) was listed as being a high exposure in threat protection, note that Merrill Lynch has not updated its call since September 3. At that time, it said that second-quarter trends in the networking security and content security markets showed no signs of fatigue. In that report, its Buy rating was maintained with a $51.00 price objective.

Fortinet shares were last seen trading at $42.98, with a consensus analyst price target of $51.50 and a 52-week trading range of $23.41 to $50.31.

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Splunk

Splunk Inc. (NASDAQ: SPLK) has a high exposure to cybersecurity in the Merrill Lynch theme of high cloud and data and threat intelligence. The firm believes that Splunk’s total addressable market is now about $45 billion, versus about $29 billion at the time of its IPO. The firm further noted late in September that Splunk has a competitive advantage in a tough environment. The company’s stock was maintained as Buy with an $82.00 price objective at that time.

On Tuesday, shares of Splunk were trading around $57.22. The stock has a consensus analyst price target of $79.44 and a 52-week trading range of $49.61 to $76.85.

A10 Networks

A10 Networks Inc. (NYSE: ATEN) is one of the smaller players mentioned by Merrill Lynch, and it may be more in line with Merrill Lynch also targeting Juniper Networks and Cisco Systems in the theme for networking and security, and it carries a Buy rating in both companies. Still, the small cap stock has a Buy rating too at the firm, and the price objective is $7.50 on the stock.

A10 shares were last seen trading at $6.18, with a consensus analyst price target of $7.57 and a 52-week trading range of $3.90 to $7.40.

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