Why These Two Analysts Are Bullish On The Cybersecurity Sector

Daniel Ives of FBR Capital Markets & Co. commented in a note on Monday that his recent field checks within the cybersecurity sector through the third quarter point to "white hot deal momentum" as companies and governments continue upgrading to next-generation security platforms and software.

"Based on our conversations with channel partners/customers, closure rates look to be trending higher both quarter over quarter and year over year with seven-figure deals markedly up in the pipeline," Ives wrote. "This speaks to the massive firewall refresh that is underway, with hot areas of security (advanced persistent threats, next-generation firewall, e-mail security, mobile/cloud) as the main beneficiaries."

Ives went on to name Palo Alto Networks Inc PANW, FireEye Inc FEYE, Fortinet Inc FTNT, Proofpoint Inc PFPT and Check Point Software Technologies Ltd. CHKP as companies that will be the "main beneficiaries" and "at the forefront" of the next-generation security market that is expected to experience 30 percent growth in 2015 as it is an "all-important area of IT."

Related Link: Demand For Cybersecurity Investments Is Still "White Hot"

Pacific Crest: Increased Confidence In Security Spending

Rob Owens of Pacific Crest also commented on the sector following his attendance at the 17th Annual Global Technology Leadership Forum in Vail, Colorado.

Owens noted that he came away from the forum "more positive" on opportunities in the second half of the year based on discussions with industry leaders and management teams. The analyst added that a common theme in his discussions was the continued focus on security, while commentary around the infrastructure sector was "more mixed."

Owens explained that security concerns continue to be "top of mind" for enterprise customers, as increased breach activity – including the loss of intellectual property and financial information – "holds center stage."

"For years security firms focusing on advanced solutions were underappreciated as corporate security buyers sought to 'check the box' on compliance, rather than spend on ensuring the highest level of security," Owens wrote. "The consequences of such lacking security strategies have clearly played out, spurring CISOs to take drastic measures to overhaul their security postures, lest their company logo be the next to appear in a breach-related headline."

Owens also stated that security companies demonstrated "relatively favorable results" throughout the second quarter, with 60 percent of companies exceeding his revenue estimates while 67 percent exceeded billings estimates. Looking forward to the seasonally stronger second half of the year, the analyst is expecting momentum to continue, as companies should report "solid results" across the space.

However, Owens did caution that several companies such as Checkpoint, Fortinet, Qualys Inc QLYS, Symantec Corporation SYMC and VMware, Inc. VMW have estimates calling for higher-than-average strength in billings, revenue or both. As such, the firms may report a weaker-than-expected print.