The Best Names To Play In Next-Gen Cybersecurity...

• Shares of Palo Alto Networks Inc PANW, Check Point Software Technologies Ltd. CHKP and Proofpoint Inc PFPT have been under pressure over the past month.
• FBR & Co’s Daniel H. Ives expressed optimism regarding cybersecurity demand into 2016.
• Ives commented on various cybersecurity players, naming some of them as the best plays.

Following another strong year for cybersecurity companies, field checks for 4Q15 and initial 2016 pipelines indicate robust deal flow, “particularly on the seven-figure-deal front,” with enterprises and governments continuing to face sophisticated threats, analyst Daniel H. Ives said.

Cybersecurity spending and pipelines planned for 2016 appear robust, albeit more methodical. While there has been a decline in "emergency spending," which disproportionally hurt vendors such as FireEye Inc FEYE, spending for next-gen cybersecurity is expected to grow at over 30 percent y/y in 2016, Ives mentioned.

The analyst believes that current penetration rates for next-gen cybersecurity solutions at enterprise/government agencies continue to be below 15 percent, implying “massive potential for growth in this $30B market opportunity over the next three years.” He added, however, that the Street remains concerned about stiff competition in the coming quarters, with cybersecurity spending becoming more normalized.

Ives named Palo Alto, Check Point, and Proofpoint, as “the best names to play in next-generation cybersecurity.” He added that Fortinet Inc FTNT is a "prove-me" name, although it is well positioned in 2016. Imperva Inc IMPV and Cyberark Software Ltd CYBR are also exposed.

Ives said that 2016 could be “the year of security M&A,” and larger tech players such as Cisco Systems, Inc. CSCO, Microsoft Corporation MSFT, Hewlett Packard Enterprise Co HPE, and Oracle Corporation ORCL could seek to acquire cybersecurity vendors to help plug their product gaps. He named Qualys Inc QLYS, Fortinet, and Proofpoint as potential top candidates.

Following years of market share losses and execution issues, traditional legacy security vendors Cisco and Symantec Corporation SYMC “could be getting back some of their sea legs,” the FBR & Co report noted.