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Imperial Capital's Favorites In Cybersecurity Ahead Of Q2 Earnings

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Imperial Capital's Favorites In Cybersecurity Ahead Of Q2 Earnings

Imperial Capital listed out FireEye Inc (NASDAQ: FEYE), Qualys Inc (NASDAQ: QLYS) and Varonis Systems Inc (NASDAQ: VRNS) as its cybersecurity picks heading into second-quarter earnings.

The Sector

Despite seeing mixed spending trends for larger transactions, the brokerage projects higher growth in emerging market segments beyond the network perimeter, including privileged account security, cloud security and data governance.

"We also see expanding opportunities to capitalize on the migration to public cloud infrastructure, virtualization, and cloud-based applications, which could adversely impact demand for on-premise solutions and hardware-based appliances," analyst Michael Kim wrote in a note.

Related Link: All Of Imperial Capital's Cybersecurity Coverage Ahead Of Earnings

In addition, the analyst sees potential international headwinds due to macroeconomic uncertainty following the Brexit referendum and increased political uncertainty in the Middle East region. These headwinds, according to Kim, could result in tempered information technology (IT) budgets, especially for major projects.

FireEye

Kim has an Outperform rating and $25 price target on FireEye shares, stating, "We anticipate the company's new CEO, Kevin Mandia (previously president), will articulate his strategic vision and positioning of the company during the 2Q16 earnings call, with particular focus on cloud and product subscriptions."

Further, the analyst views the recent appointment of CFO Mike Berry to the additional role of COO, as positive toward achieving higher profitability and cash flow performance. The analyst expects EPS of ($0.39) on revenue of $182.1 million.

Qualys

For Qualys, Kim maintains his Outperform rating and price target of $30, saying that investors could gain higher confidence from improved clarity on billings. The analyst projects EPS of $0.16 on revenue of $47.9 million.

"We expect QLYS will achieve 2Q16 results consistent with our estimates and consensus, given significant recurring revenue visibility," Kim noted.

"We look for potential upside from cloud agent technology (enables increased penetration) and expanding channel leverage and higher sales productivity, given recent growth investments," Kim continued.

Varonis

Meanwhile, Kim rates Varonis shares Outperform with a price target of $27 and sees potential upside to his second quarter estimates and consensus, as the analyst believes the stock is strongly capitalizing on the escalating risks of insider threats and ransomware.

Kim estimates quarterly EPS of ($0.17) and revenue of $36.5 million for Varonis.

"We highlight VRNS entered the quarter with significant growth momentum, with requests for trials and demonstrations nearly doubling in 1Q16," Kim mentioned.

Further, Kim also expects increased cross-selling and upselling of the company's data governance suite, driven by key offerings such as DatAlert (threat monitoring).

"We see increasing adoption of User Behavior Analytics (UBA) as a key growth opportunity for VRNS to capture greater wallet share of security budgets," Kim added.

At Time Of Writing...

  • FireEye was down 1.01 percent at $16.20.
  • Qualys was seen trading at $31.23, down 0.19 percent.
  • Varonis was down 1.76 percent on the day at $25.13.

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