In a research report released this week, the analysts at Oppenheimer pointed out that cybersecurity remains a top priority for both corporations and government entities.
Despite good first-quarter reports from many of the players in the industry, tech stocks got caught up in the same sell-off that struck biotechnology and other momentum stocks.
So analysts see plenty of potential upside in this otherwise growing segment, particularly for the three stocks featured here, which all have a Perform rating from Oppenheimer.
Some other security software providers covered by Oppenheimer include Check Point Software, Fortinet and Symantec. But below we take a look at how FireEye, Imperva and Palo Alto Networks have fared and what analysts in general expect from them.
FireEye has been called the "gorilla of the field" when it comes to its predictive approach to cybersecurity. But the stock faces the end of its IPO lock-up period next week. It sports a market capitalization of more than $3 billion. The consensus forecasts call for net losses this year and the next and the return on equity is in the red.
The number of shares sold short in this Milpitas, California-based company was almost six percent of the total float at the end of April. That was the highest level of short interest since its initial public offering. At the current average daily volume, it would take less than two days to close out all short positions.
Nine of the 20 analysts who follow the stock and were surveyed by Thomson/First Call recommend buying shares, with five of them rating it at Strong Buy. Their mean price target, or where the analysts think the share price will go, is almost 45 percent higher than the current share price.
Shares have been crushed, pulling back more than 71 percent since reaching a post-IPO high back in early March. The share price reached a post-IPO low this week. Over the past six months, the stock has underperformed Palo Alto Networks and the broader markets, but it has outperformed Imperva.
Related: FireEye To Repeat Twitter Lock-Up?
This data center security solutions provider announced preliminary first-quarter results in April that were light on revenues and shares tanked. Imperva has a market cap of around $520 million. The long-term earnings per share (EPS) growth forecast is about 25 percent, but the return on equity is in the red.
The short interest in Redwood Shores, California-based Imperva was more than four percent of the float at the most settlement date, even after the number of shares sold short saw a marginal decline from the previous period. It would take about two days to close out all short positions.
All but four of the 13 surveyed analysts recommend buying Imperva shares. A move to the analysts' mean price target would be a gain of more than 38 percent for shareholders. However, that consensus target is much lower than the 52-week high reached back in early March.
Shares fell to a multiyear low last week and are trading more than 70 percent lower than the 52-week high. The 50-day and 200-day moving averages formed a death cross last week as well. Because of the sell-off, the stock has underperformed larger competitors Check Point and Symantec over the past six months.
Palo Alto Networks
This Santa Clara, California-based network security company was also a Pacific Crest pick featured in Barron's this week. It is a rumored takeover target and it has a market cap of more than $4 billion. Its long-term earnings per share (EPS) growth forecast is almost 55 percent, but the return on equity and operating margin are in the red.
After increasing by more than 18 percent in April from a year-to-date low, the number of shares sold short represented more than three percent of the total number of Palo Alto Networks shares available. The days to cover remained less than two.
Of the 25 analysts polled, 18 recommend buying shares, with six of them rating the stock at Strong Buy. The analysts see plenty of headroom for shares, as their mean price target is more than 28 percent higher than the current share price. That would be a new multiyear high.
After retreating more than 22 percent from the multiyear high in mid-March, the share price is still about 11 percent higher than at the beginning of this year. And it is still above its 200-day moving average. The stock has outperformed the likes of Cisco Systems and Juniper Networks over the past six months.
At the time of this writing, the author had no position in the mentioned equities.
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