CITI Initiates Coverage On Secureworks; Sentiment Could Drive Stock Up Or Down

Citi Group's Walter H Pritchard initiated coverage on Secureworks Corp SCWX and set a price target of $14.00.

The security environment in IT will play very well into the company's growth. There is a shortage of "qualified security personnel worldwide," and it could reach "1.5 million by 2019 from 400,000 today," Pritchard said. Managed security services (MSS) is the solution to the shortage and "SecureWorks is a pure-play on this market," Pritchard noted. The MSS is set to grow from an $8 billion market to $12.2 billion by 2019.

Related Link: JPMorgan Starts Secureworks At Overweight, $18 Target

Pritchard's Three Upsides

• 1. "The company can expand its use cases within existing customers and land more customers" than Citi estimates, as they took into the degradation of sales productivity against FY 16 as the company experiences growing pains.
• 2. "International opportunities represent 75 percent of the MSS market and SCWX has <15 percent of revenue internationally."
• 3. "The shift towards MSS from consulting drives more valuable recurring revenue and helps profitability."

The analyst remains Neutral on the issue, despite Secureworks potential due to similar outlook for many of its peers. It will come down to the investor's valuation of the company's service vs. security product and which company gets favorable treatment due to sentiment.