Analyst Sees 'Strong' Federal Cybersecurity Spending As Another Tailwind For Q3

• FBR & Co.’s Daniel H. Ives said that cybersecurity vendors are likely to have had another healthy earnings season in 3Q.
• Spending by governments on next-generation cybersecurity initiatives could spike, given the heightened threat environment.
• Well-positioned cybersecurity vendors and mature technology players were poised to benefit from an increase in spending by the Federal government.

Analyst Daniel Ives mentioned that checks towards the end of 3Q were strong. He expects cybersecurity vendors to have witnessed another healthy earnings season, backed by “an uptick in deal closure rates, large deal activity, and a strategic focus around cybersecurity.” There have been no signs of a slowdown heading into yearend.

“A change that we have picked up in the field is a discernible increase in cybersecurity projects from the U.S. federal government heading into its fiscal year-end/September versus the year-ago period,” Ives wrote.

The analyst estimates federal cybersecurity spending to have risen by about 40 percent y/y. The pipeline is appears robust as well, with federal partners and customers having indicated during the September quarter that there could be a spike in spending by governments on next-generation cybersecurity initiatives, in view of the heightened threat environment.

The FBR & Co report stated that the next-generation cybersecurity market opportunity could grow to $20 billion over the next three years, while pointing out that merely 8-10 percent is penetrated to date.

Ives believes that well-positioned vendors, such as Palo Alto Networks Inc PANW [Rated: Outperform], FireEye Inc FEYE [Rated: Outperform] and Fortinet Inc FTNT [Rated: Outperform], would benefit the most from the expected surge in cybersecurity spending by the federal government. Cyberark Software Ltd CYBR also has exposure to this.

The report added that larger, mature technology players were also poised to benefit from the surge in cybersecurity spending over the coming year. One such is Symantec Corporation SYMC [Rated: Market Perform], “given the company's strong government presence and renewed focus on beefing up its cybersecurity product wings/strategy.”