These stocks profit by defending companies against online attacks.
One of the biggest trends in the global economy in 2020 has been the digitization of many businesses. The health crisis may have sped up this phenomenon, but the business world has been slowly shifting online for years. Each additional transaction that takes place over the internet increases the importance of cybersecurity. Dollars, data and intellectual property are all at risk, and hackers are more sophisticated than ever. Of course, the growing need for digital security is great news for cybersecurity companies working to protect their customers. Here are nine cybersecurity stocks Bank of America analysts recommend.
CrowdStrike Holdings (ticker: CRWD)
CrowdStrike is a leader in the endpoint protection platform, or EPP, business, providing solutions to help protect internet devices from cyberattacks. Analyst Tal Liani says CrowdStrike management is executing its strategy extremely well, upselling existing customers and adding new ones at an impressive rate. Revenue was up 84% year over year in the last quarter, and the percentage of customers with at least five cloud modules increased to 39%. Liani says the stock’s valuation is a near-term risk given it trades at 49 times sales and 582 times forward earnings. However, Bank of America has a “buy” rating and $172 price target for CRWD stock.
Ping Identity Holding Corp. (PING)
Ping Identity is an identity access and management company that safeguards companies by providing user authentication and access products. Liani says the company’s guidance suggests the health crisis has created some growth headwinds. However, the identity and access market is strong, and enterprise customers are prioritizing best-in-class identity security. Large deals are likely being delayed rather than scrapped, potentially creating a tailwind in 2021 and beyond. Last quarter, Ping reported a new seven-figure deal with one of the nation’s largest health care providers. Bank of America has a “buy” rating and $36 price target for PING stock.
CyberArk Software (CYBR)
CyberArk specializes in protecting companies from cyberattacks that use insider privileges to access critical assets. Analyst Daniel Bartus says CyberArk’s second-quarter margins and revenue growth were impressive, and the company’s transition to a recurring software-as-a-service revenue model is progressing well. Bartus says more recurring revenue and CyberArk’s expansion into broader identity security via its $70 million Idaptive buyout earlier this year should position the stock for earnings multiple expansion over time, potentially eliminating a valuation gap between the stock and its cybersecurity peers. Bank of America has a “buy” rating and $140 price target for CYBR stock.
Dynatrace provides an infrastructure monitoring platform. Analyst Kash Rangan says the company has highly differentiated technology, and its $30 billion total addressable market suggests a long growth runway. Rangan says Dynatrace’s business model is balanced and durable, and the company has an opportunity to pursue 15,000 global customers that are dealing with increasingly complex multicloud environments. Rangan is projecting roughly $650 million in fiscal 2021 revenue but says the company has an opportunity to grow into a multibillion-dollar business in the long term. Bank of America has a “buy” rating and $50 price target for DT stock.
Fortinet is a leader in unified threat management network security solutions. Liani says Fortinet’s software-defined wide area network, or SD-WAN, offering has performed particularly well, and the company is benefiting from a spike in work-from-home demand in 2020. Demand for FortiToken and FortiAuthenticator has been strong given the rise in remote work. Liani says Fortinet’s diversification of products, geographical locations and business verticals provide stability and flexibility. He says management has been executing well on new products, and the company’s near-term guidance is conservative. Bank of America has a “buy” rating and $155 price target for FTNT stock.
Proofpoint is a security software company that specializes in email security, archiving and social media. Proofpoint provides email security for more than half of the world’s Fortune 1,000 companies. Management says the fourth quarter of 2020 should be the low point for Proofpoint’s revenue growth, and growth rates should begin to accelerate in 2021. Bartus says the company’s core email security products are performing well, but its new products represented more than a third of Proofpoint’s new and add-on business in the second quarter. Bank of America has a “buy” rating and $140 price target for PFPT stock.
Splunk is a software platform for collecting, storing, searching, analyzing and protecting machine-generated data. Splunk’s product portfolio in security, information technology and DevOps is extremely diversified. Rangan says Splunk’s cloud business should help the company scale its business to reach $5 billion in revenue within four years. Annual recurring revenue was up 50% last quarter to $1.9 billion, and cloud ARR grew 89%. Rangan says Splunk is outperforming peer growth rates and is one of the few software companies with accelerating growth in 2020. Bank of America has a “buy” rating and $26 price target for SPLK stock.
Zscaler is a market leader in the secure web gateway, or SWG, market, which helps protect companies’ internet traffic. With the stock trading at 45 times sales and 271 times forward earnings, Bartus says investors are right to be concerned about the stock’s valuation in the near term. However, he says Zscaler is a high-growth stock with massive addressable markets that are also expanding rapidly. Bartus says Zscaler’s products support remote work environments and mobility, two trends that accelerated in 2020 and will likely continue in 2021. Bank of America has a “buy” rating and $155 price target for ZS stock.
Atlassian Corp. (TEAM)
Atlassian provides team collaboration tools and associated security services. Analyst Nikolay Beliov says cloud migration has Atlassian on track to reach $10 billion in revenues by fiscal 2029. Bank of America is projecting as high as 30% annual revenue growth for the company over the next three to four years. Beliov says Atlassian’s unique business model warrants a premium stock valuation relative to peers given the company’s exceptional revenue growth and consistent free cash flow margins of more than 30%. Atlassian shares are already up more than 55% in 2020. Bank of America has a “buy” rating and $207 price target for TEAM stock.
Cybersecurity stocks to buy:
— CrowdStrike Holdings (CRWD)
— Ping Identity Holding Corp. (PING)
— CyberArk Software (CYBR)
— Dynatrace (DT)
— Fortinet (FTNT)
— Proofpoint (PFPT)
— Splunk (SPLK)
— Zscaler (ZS)
— Atlassian Corp. (TEAM)
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