Technology

Despite Massive Selling of Cybersecurity Stocks, UBS Says Demand Remains Huge

Lee Jackson

Published: November 20, 2015 10:40 am

Last Updated: January 13, 2020 4:56 pm

It never fails. One sector can be red hot, and then within a few short months it becomes a pariah, and nobody wants to own the stocks. Then, short-sellers sense the blood in the water and pounce exacerbating the situation. This year alone both the yieldco clean tech energy stocks and the cybersecurity software companies have gone from the penthouse to the outhouse.

In a new report, UBS gives a wrap-up to its recent global technology conference and included some interesting thoughts on the beaten-down cybersecurity stocks. The report maintains that the analysts who attended the conference saw no universal signs that the big demand is slowing. They did note that most vendors indicated that enterprises are showing a greater bias toward platforms, versus incremental point tools.

Three stocks are large platform players and could be outstanding values for aggressive accounts to consider buying now.

Check Point Software Technologies

This remains one of the top tech stocks to buy on Wall Street for a security presence. Check Point Software Technologies Ltd. (NASDAQ: CHKP) is one of the best in helping customers protect against advanced persistent threats (APTs). Check Point is considered a worldwide leader in securing the Internet, providing customers with uncompromising protection against all types of threats, reducing security complexity and lowering the total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology.

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The company reported outstanding third-quarter results that topped estimates, and its revenue growth rate has accelerated almost every quarter over the past year and a half. Many on Wall Street think that Check Point should see year-over-year accelerating growth in product licenses, particularly as the security firewall refresh appears to be in the beginning stages. It is not out of the question that Check Point could look for acquisition to bolster the already exceptional product line.

The Thomson/First Call consensus price target for the stock is $92. Shares closed Thursday at $83.60.

Fortinet

Despite reporting good earnings recently, Fortinet Inc. (NASDAQ: FTNT) got absolutely hammered. It is well liked on Wall Street, and the company’s fast, secure and global cybersecurity solutions 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 were horrified recently as the company posted strong results on the top and bottom lines but was taken to the woodshed after providing forward guidance that didn’t sit well with many of the analysts covering the stock. Billings growth grew a staggering 40.5% year over year, driven by strong demand for high-end appliances, subscriptions and new product offerings.

Many on Wall Street remain very positive on Fortinet and note that while the fourth-quarter guidance was less than expected, some of that can be attributed to weak Canadian and emerging markets. Analysts think that Fortinet can continue to outgrow the market in the foreseeable future due to sales force productivity gains and product refreshes. It is possible a service-oriented company like IBM or Hewlett Packard Enterprise would have an interest in the company.

The consensus price target is $48.48. Shares closed Thursday at $34.42.

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Palo Alto Networks

This has been a momentum trader’s dream over the past two years and may have more investors looking the company’s way after the FireEye implosion. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats, and it boasts 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.

Palo Alto Networks security platform has new features 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.

The company blew away fiscal fourth-quarter earnings and soon report first quarter results. The best thing for investors is the most recent quarter’s numbers were against already tough comparisons, and with the demand for security continuing almost unabated, the company could be poised for years of incredible growth. It continues to be ranked the highest with the Wildfire product, which has been the favorite in the APT space among the value added resellers that carry and sell the product. Toss in 20% upside in billing for the quarter, and the story is a killer going forward.

Lastly, other analysts on Wall Street have made it clear that the feedback they got from the professionals at recent security conferences was the most bullish on Palo Alto, and the company is gaining real traction with larger data centers firewalls.

UBS has a $202 price target, while the consensus target is $201.63. Shares closed trading Thursday at $167.39.

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The exodus of fast-money traders is no doubt a big reason for the recent collapse in the stocks. But make no mistake, the need for the product is gigantic, and while the re-rating of the companies may be ongoing, the next big corporate or government hack will refocus attention squarely back on all of them.