Nomura Upgrades CyberArk On Market Penetration Potential

• CyberArk Software Ltd CYBR shares are down 25 percent since June 23, when they traded above $70, and remained below the $50 mark through most of September.
• Nomura’s Frederick Grieb upgraded the rating on the company from Neutral to Buy, while raising the price target from $57 to $62.
• Citing CyberArk’s strong product portfolio and underpenetrated TAM, Grieb said that the company could generate robust growth ahead.

Analyst Frederick Grieb commented, “While historically we have been positive on CyberArk’s market position and solid product set, we had been unable to get comfortable with the company’s rich valuation.”

Over the last three months, CyberArk’s shares have plummeted 25 percent, versus an 8 percent decline in the S&P 500. Grieb believes that the shares are now at a level that is “attractive,” especially in view of the expectation of 35 percent y/y growth in 2016.

In the report Nomura noted, “Taking a bottom-up approach, we arrive at a $9.0bn potential TAM for CyberArk license revenue…Additionally, we note that this market should be able to support $1.8bn in annual maintenance revenue, assuming maintenance is priced at about 20% of license revenue.”

CyberArk’s market penetration is merely 2.8 percent of the license revenue opportunity. It is expected to achieve an additional 1.4 percent penetration in FY16. “Considering CyberArk is a dominant vendor in the PAM market, we feel this level of penetration suggests it is still early days, leaving significant runway for continued growth,” Grieb said.

The rating upgrade and PT revision reflect the recent pullback in shares and the company’s solid fundamental story. “CyberArk enjoys a commanding position within the high-growth, underpenetrated PAM market that has recently gained significant prominence in the security sector,” Grieb explained.