Demand In Cybersecurity Sector 'White Hot'; Palo Alto Remains Clear Winner

In a report published Wednesday, Daniel H. Ives of FBR & Co. shared an update on the state and outlook for the tech industry.

Although the analyst expects attention to continue to concentrate around many of the same next-generation software technologies that garnered attention in previous years, they anticipate that the ongoing explosion of data nicely positions “vendors with strong cloud, security, and big data analytics offerings […] to capitalize on robust market growth in 2016.”

Therefore, the expert recommended investors to remain selective, focusing on “high-priority secularly strong growth areas” rather than being long the wider group.

In this line, their favorite names for 2016 are:

• Palo Alto Networks Inc PANW
• Proofpoint Inc PFPT
• Qlik Technologies Inc QLIK
• Splunk Inc SPLK
• Synchronoss Technologies, Inc. SNCR
• Nice-Systems Ltd (ADR) NICE
• Microsoft Corporation MSFT

• Palo Alto Networks Inc PANW
• Proofpoint Inc PFPT
• Qlik Technologies Inc QLIK
• Splunk Inc SPLK
• Synchronoss Technologies, Inc. SNCR
• Nice-Systems Ltd (ADR) NICE
• Microsoft Corporation MSFT

Related Link: Microsoft's "Best Cloud Days Are Ahead"

Cybersecurity Demand Still ‘White Hot’

As another robust year for cybersecurity names comes to an end, FBR’s field checks suggest that heading into 2016 the space will continue to see “white hot” deal momentum, as companies and government agencies across the globe upgrade to next-generation security platforms and software.

In fact, it seems like closure rates are trending higher – both compared to the previous quarter and the fourth quarter of 2014, with seven-figure contracts notably up in the pipeline, the report noted.

This trend supports the thesis of a massive firewall refresh being underway, “with hot areas of security (advanced persistent threats, next-generation firewall, e-mail security, mobile/cloud) as the main beneficiaries.” Actually, the experts at FBR believe that penetration rates for next-generation cybersecurity solutions at both enterprise and government agencies stand below 10 percent, and this provides massive potential for growth in a market opportunity estimated at $30 billion over the next three years.

Palo Alto Remains The Winner

FBR’s recent conversations with customers and partners have suggested that “the sophisticated threat environment is front and center on the minds of CIOs, with Palo Alto's newer/updated (e.g., Traps) and existing (e.g., WildFire, NGFW appliances) products for the enterprise garnering strong interest, as it remains early innings of a major legacy solution upgrade cycle.”

In fact, the strong results the company retrieved in 2015 and continued positive checks led the analysts to think Palo Alto has big cross-sell opportunities with its subscription services and next-generation firewall, while newer technologies like big data analytics for security provide further tailwinds.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.