As the amount of data being produced and processed is surging, so are the number of cyber attacks being reported. One of the largest and most compromising for customers was the attack on Equifax (EFX) that occurred in 2017. The company stated that hackers gained access to 143 million U.S. customers’ data which included driver’s licenses and Social Security numbers. Since then, the frequency of these attacks has skyrocketed, driving the rapid growth of the cybersecurity industry.
The ETFMG Prime Cybersecurity ETF (HACK), the oldest cybersecurity EFT, is up 12% year-to-date. With IBM’s cyber analysis team reporting that malware attacks already increased 200% so far in 2019, the demand for cybersecurity solutions has never been higher.
Here are the 3 cybersecurity stocks analysts say investors should watch as the industry booms.
Palo Alto Networks, Inc. (PANW)
Palo Alto Networks is one of the most well-known players in the cybersecurity space. The company offers clients a security platform that monitors traffic using cloud-based solutions and firewalls.
According to PANW’s Q3 earnings release on May 29, its business looks solid. It reported Q3 gross margin was 76.5%, up 30 basis points from the year before. Lower capital expenditures are attributed to its $280 million in free cash flow, gaining 27% at a margin of 38.5%.
The company isn’t stopping there, with it placing a consistent focus on expansion. On July 9, PANW announced that it acquired container security company, Twistlock, for $410 million. Earlier in June, Palo Alto Networks acquired PureSec for $47 million to gain access to its serverless security products.
Its WildFire malware prevention service also received Federal Risk and Authorization Management Program (FedRAMP), Authority to Operate status from the U.S. Naval War College on July 24. This means that any Federal Agency can now utilize the service.
Financial blogger, Luke Lango, argues that all of these factors lends itself to PANW stock trading higher in the long-run. “Going forward, Palo Alto Network reasonably projects as a 15%-plus revenue grower with favorable margin drivers. That should drive somewhere between 20% and 25% profit growth over the next few years, which puts 2025 earnings-per-share somewhere around $16. Based on a software average multiple of 25-times forward earnings, that implies a long-term price target for PANW stock of $400, substantially higher than today’s price tag,” he writes.
Five-star analyst, Jonathan Ruykhaver, agrees that PANW offers plenty of upside. On July 11, he reiterated his Buy rating and $275 price target. The Robert W. Baird analyst believes share prices could soar by 28% over the next twelve months. He has a 67% success rating and gets an average return of 19% per rating.
PANW has a ‘Strong Buy’ analyst consensus and a $263 average price target, suggesting 23% upside potential.
Fortinet, Inc. (FTNT)
Fortinet specializes in providing broad, integrated and automated cybersecurity solutions. Despite the growing number of competitors, the second cybersecurity stock on our list has managed to maintain a steady stream of growth.
FTNT shares are up 17% year-to-date, with many analysts telling investors not to expect a slowdown anytime soon. On August 2, Merrill Lynch gave the stock a ratings boost as it expects the future to be bright. Analyst Tal Liani upgraded the rating to a Buy and set a $103 price target, suggesting FTNT could soar by as much as 26% in the next twelve months.
The upgrade comes after the company not only posted an earnings beat and raised its full-year guidance, but also announced released new products. On August 1, FTNT reported revenue of $522 million, beating the $511 million consensus estimate.
That same day, FTNT announced the release of three new high-performance FortiGate Next-Generation Firewalls (NGFWs) that include FortiGate 1100E, FortiGate 2200E and FortiGate 3300E. These new offerings were designed to help enterprises secure and accelerate the on-ramp to the cloud, or the cloud environments that enable data to be used efficiently.
“Fortinet has successfully transitioned from an inconsistent niche security play to a major cybersecurity vendor. Give the projected ramp in cybersecurity spending expected in the years ahead and Fortinet’s potential to gain market share from its competitors thanks to several new products in the works that could serve as positive catalysts for the stock, even after its big post-earnings gain. In the longer term, 5G network security could serve as an additional catalyst as well,” analyst Daniel Ives said on August 2. The Wedbush analyst reiterated his Buy rating and raised his price target from $105 to $110, indicating 34% upside.
FTNT has a ‘Moderate Buy’ analyst consensus and a $94 average price target, suggesting 15% upside potential.
Akamai Technologies, Inc. (AKAM)
Akamai differentiates itself by providing not only cloud-based solutions, but also solutions that enable the shift from linear content to internet content. The stock has gained 41% year-to-date, with the good news not stopping there.
The company pleasantly surprised the Street when it reported a second quarter earnings beat on July 31. Revenue was up 6% from the prior-year quarter to $705 million, surpassing the $696 million consensus estimate. Non-GAAP second quarter EPS beat analysts’ estimates of $1.01 coming in at $1.07. This amounted to a 29% gain from the year-ago quarter.
Not to mention management raised its full-year guidance with revenue expected to fall between $2.84 billion and $2.87 billion and earnings to be between $4.23 and $4.30 per share. This is up from the previous forecast of between $2.82 billion and $2.86 billion in revenue and earnings between $4.05 and $4.20 a share.
The results were based on AKAM’s gains in its media content delivery segment and its cloud security products. Top analyst, Lee Krowl, said, “The gains were driven by strong performance by Security (even organically), along with upside from OTT in the Media segment. We underappreciated the contribution from the Security business which continues to ramp, driven by increasing product adoption by exiting customers (bundling), along with a full-quarter contribution from Identity Cloud (fka—Janrain).” On July 31, the B.Riley FBR analyst reiterated a Buy rating and $102 price target, suggesting 19% upside potential.
On August 5, investors got yet another reason to be excited when AKAM launched Edge Cloud for Internet of Things (IoT) device security. The product uses Akamai’s edge platform to secure data delivery to connected devices and in-application messaging at scale.
Analyst Shebly Seyrafi sees its updated guidance and new product offerings as supporting its long-term growth narrative. On August 5, the FBN Securities analyst reiterated his Buy rating and $100 price target, indicating 16% upside potential.
The Street is cautiously optimistic on this cybersecurity stock. It has a ‘Moderate Buy’ analyst consensus and a $91 average price target, suggesting 5% upside.