Market Overview

9 Key Points Every Cybersecurity Investor Should Know

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FBR & Co. issued an industry update on cybersecurity this Tuesday. Analysts Daniel H. Ives and James Moore saw increased concern over cybersecurity due to high profile attacks in both the public and private sectors.

Massive data breaches have caused CIOs and IT departments to seek protection, and the analysts were encouraged that vendors have benefited from “transformational shifts to next-generation firewall/cloud security solutions.”

Related Link: 30 Cybersecurity Stocks In A Dangerous Digital World

The analysts believed that “next-generation cybersecurity spending is strong thus far in 1Q despite it being a seasonally soft quarter in software” as focus remained on protecting enterprise, cloud and big data systems from attack.

The firm highlighted 9 key points that investors should know:

1. “Penetration for next-generation cybersecurity remains in the early days,” with penetration rates under 10 percent and the opportunity for a “once-in-a-multi-decade” upgrade.

2. “Federal focus [is] driving a number of conversations” as “‘cyber warfare’ heats up.”

3. The firm raised its price targets "across next-generation cybersecurity names.”

4. The means and sophistication of attacks continue to morph and represent an “evolving threat landscape” with legacy systems in enterprises and governments at the most risk.

5. “Security solutions [are] converging” and the fragmented market will consolidate over the coming year as CIOs demand integrated solutions. This could lead to M&A activity and “more partnerships between enterprise/cybersecurity software companies.”

6. “Secular trends [are] helping drive M&A activity for the security software space in 2015...smaller, high-growth pure-play cybersecurity names that are experiencing strong success at enterprise bake-offs in the field, such as FireEye and Fortinet, could be on the radar of larger technology companies.”

7. The “federal government [is] supporting cyber initiatives” and “President Obama's FY16 budget proposal included $14 billion to be spent on cybersecurity efforts, up from approximately $13 billion in recent years.”

8. The “move to the cloud [is] helping drive spending levels on next-generation security” which, due to the increase in data and traffic movement, “has added to the potential vulnerabilities of networks.”

9. The key beneficiaries of the “massive upgrade cycle” included Palo Alto Networks Inc (NYSE: PANW), FireEye Inc (NASDAQ: FEYE), Check Point Software Technologies Ltd. (NASDAQ: CHKP), Proofpoint Inc (NASDAQ: PFPT) and Fortinet Inc (NASDAQ: FTNT).

The firm maintained Outperform ratings on all of the above companies.

Latest Ratings for PANW

Jan 2018Evercore ISI GroupUpgradesIn-LineOutperform
Dec 2017William BlairUpgradesMarket PerformOutperform
Nov 2017Imperial CapitalMaintainsOutperformOutperform

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Posted-In: Daniel H. Ives FBR & Co. James MooreAnalyst Color Long Ideas Analyst Ratings Trading Ideas


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