The cliché says, May you live in interesting times. These days, it seems that’s just a description of ordinary life. The coronavirus crisis whipsawed the economy from gangbusters growth to a short, but deep recession – and now we’re seeing the markets rise and rise and rise. The S&P 500 has regained its pre-crisis record levels, and the NASDAQ seems to set new highs every day. Data shows that unemployment is falling, and the jobs are coming back.
More importantly, perhaps, the nature of work may have permanently changed. The virus prompted a mass move to remote work and telecommuting, and office life will most certainly never be the same. And from an investor perspective, that move will open new opportunities. Cybersecurity, for example.
Investment bank JPMorgan is taking a long, hard look at the cybersecurity universe. The firm’s 5-star analyst Sterling Auty, a respected tech expert with a focus on networking and cybersecurity companies, has been tagging those players he sees as primed for growth in the new conditions of the jobs market, the digital world, and the overall economy. Auty holds a top rating from TipRanks, and is ranked among the top 5% of all analysts covered. Let’s find out what JPM’s go-to cybersecurity guru has to say.
CyberArk Software (CYBR)
The first stock on our list is CyberArk Software, a leader in IT security. The company offers privileged access management tools, to protect data, infrastructure, and assets on networks and cloud systems. CyberArk’s tech protects customers against insider cyber attacks, using targeted security solutions to prevent harm to the business. CyberArk boasts some 6,000 customers, and its clients include more than half of the Fortune 500 list.
The importance of cybersecurity can be seen by CyberArk’s moves – during the height of the pandemic crisis, to buy identity security firm Idaptive. The acquisition makes sense – CyberArk focuses on maintaining the reliability of secure privileged access; Idaptive uses a ‘Zero Trust’ approach to access security, treating all users in the same way. It’s a good match, important for a deal worth $70 million.
CyberArk was able to make the acquisition despite seeing revenues and earnings slip in the 1H20. The recent Q2 results, however, showed EPS strongly above the forecasts, with a 9-cent per share profit instead of the 4-cent loss predicted. Shares of CYBR are up 51% since hitting bottom in mid-March, a clear sign of confidence in the company.
JPMorgan’s Auty sees an upbeat future for CyberArk, writing of the company, “The top-line growth rate is not the story here, but rather the pace of SaaS adoption, expanding product portfolio, and improving sales pipeline… management has bolstered the addressable market through acquisitions including Idaptive. The result is that we are seeing better new customer traction that can deliver more sustainable topline growth into the future.”
In line with his outlook, Auty rates CyberArk as Overweight (i.e. Buy). His price target, at $140, suggests a 29% one-year upside for the stock. (To watch Auty’s track record, click here)
Overall, CyberArk has a Moderate Buy rating from the Wall Street analyst consensus, based on 8 Buys and 4 Holds set in recent weeks. The stock is selling for $108.67, and the average price target of $126.36 implies an upside potential of 16%. (See CYBR stock analysis on TipRanks)
FireEye, Inc. (FEYE)
Next on our list is FireEye, a player on the cybersecurity scene since 2004. FireEye provides software and hardware, along with supportive services, to protect against malware threats, analyze IT risks, and investigate the cybersecurity attacks that do occur. FireEye includes important government entities among its clientele, including the City of San Francisco, the City of New Orleans, the Commonwealth of Virginia, and the US Department of Homeland Security.
FireEye’s products provide security for in-house networks, cloud systems, and external internet connections. A main selling point in FireEye’s marketing is that 53% of all malicious cyber attacks are never detected; the company offers its customers the means to detect attackers and deny them access.
FEYE shares have performed well in the current market rebound, gaining 83% since bottoming at $8.11 on March 16. The company’s earnings have justified the stock performance; FireEye has been operating at a net loss, but in 1H20 the company’s results were strictly in-line with historical performance. The Q2 results were notably strong, beating the forecast by 52%.
Top analyst Auty was impressed by both FireEye’s market performance and its best-in-class product offerings. He writes, “The beat and raise results in the quarter finally demonstrate that the product headwinds are fading... FireEye has long been recognized as the premier franchise for incident response under its Mandiant brand and now it is taking the shackles off by allowing this segment to utilize/manage other vendors’ products. That could create a best-of-breed combination of managed cybersecurity and intelligence... This will also open up the opportunity, in our opinion, to look at alternatives for the product business moving forward. Given the valuation remains one of the least expensive in our coverage, we believe these moves could create further share outperformance.”
Auty raised his price target on FEYE to $18, implying a one-year upside of 22% for the stock. The price target supports his Overweight (i.e. Buy) rating. (To watch Auty’s track record, click here)
FireEye has 11 recent analyst reviews, breaking down to 5 Buys and 6 Holds and giving the stock a Moderate Buy analyst consensus rating. Shares are selling or $14.68, and the $16.85 price target suggests it has room for 14% upside growth this year. (See FireEye stock analysis on TipRanks)
Varonis Systems (VRNS)
The last stock on our list today, Varonis, offers a security software system for protecting data on remote network connections. The company’s platform uses digital behavior analysis to flag abnormal system users and block potential cyberattacks. Varonis’ system is an excellent fit for a growing telecommuting and remote work environment.
Varonis has been notable in recent months for expanding its product offerings to meet the needs of remote networks. The company offers a free incident response service, and its cloud protection services have been expanded to include security Office 365 and Teams. Varonis also offers monitoring for VPN, DNS, and web proxy servers.
All of this expansion – and the goodwill it has generated with customers – has been reflected in the company’s stock performance. VRNS have strongly outperformed the broader markets in the current recovery cycle, and are up 133% since the March 19 low point. This compares favorably to the S&P’s gain of 51% over the same period.
Sterling Auty, in his coverage of VRNS, struck a highly bullish tone. He wrote: “[The] company is seeing a healthy amount of inbound interest as companies look to secure what looks to be a more exposed infrastructure under work from home/anywhere that utilizes a lot more collaboration tools. Deal sizes and number of products per customer, both new and existing, continued to grow driving the recurring revenue profile moving forward… we believe the stock price can continue to outperform.”
Auty’s Overweight (i.e. Buy) rating is supported by a $145 price target, indicating confidence in 21% growth for the coming year. (To watch Auty’s track record, click here)
Varonis gets a Strong Buy rating from the analyst consensus, based on a wide split between 12 Buys and 4 Holds. The stock’s $124.93 average price target suggests a modest 4% upside from the current $119.86 trading price. (See Varonis stock analysis on TipRanks)
To find good ideas for cybersecurity stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.