Despite the seemingly ever-rising number of security breaches at everything from major corporations to government departments to even the military, spending in the security software industry looks poised to have the best year since 2015. Five years ago, the industry was red-hot, and initial public offerings at the time skyrocketed, but a lot of that enthusiasm went away as earnings and growth slowed dramatically.
In a new research report, the security software analysts at Deutsche Bank are very positive on the potential for the first quarter and the rest of 2018. The report noted this:
We remain confident in our current billings forecasts which show combined growth for the companies we track improving to 15% in 2018 from 14% in 2017. Admittedly, this uptick in growth may appear relatively small. However, we stress that it marks the first time that growth is set to improve from the prior year since 2015. Areas such as next generation endpoint, analytics/alert prioritization, and identity are exhibiting the best growth profiles and gaining more attention from buyers. That said, we are incrementally more constructive on firewall spending and believe that product revenue trends amongst the largest vendors will stabilize and potentially improve in 2018 after decelerating in each of the last two years.
Deutsche Bank very positive on four companies in the space, and all are rated Buy.
Palo Alto Networks
This stock was a momentum trader’s dream before crashing back to earth. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats. Unlike fragmented legacy products, its security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content.
Palo Alto Networks security platform has new features that were introduced to help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products and, instead, expand breach prevention capabilities and boost operational efficiency.
The report noted this:
Our contacts suggested that the company’s pipeline is strong and lead us to believe that the company’s improved execution will continue in calendar year 2018. We remain confident in our forecasts which are slightly above the street.
The Deutsche Bank price target for the shares is $210, and the Wall Street consensus target is $197.35. The shares closed Friday at $187.38.
This company has long been mentioned as a potential takeover candidate and is also a top pick at Deutsche Bank. Proofpoint Inc. (NASDAQ: PFPT) provides threat protection, incident response, regulatory compliance, archiving, governance, eDiscovery and secure communication solutions worldwide. Its security-as-a-service solutions comprise an integrated suite of on-demand data protection solutions that enable large and midsized organizations to defend, protect, archive and govern their sensitive data.
The company provides Proofpoint Enterprise Protection, a communications and collaboration security suite designed to protect customers’ mission-critical messaging infrastructure from outside threats, including spam, phishing, unpredictable email volumes, malware and other forms of objectionable or dangerous content before they reach the enterprise.
E-mail protection remains a top priority for many companies, and this is a distinct positive for Proofpoint. The company recently entered into definitive agreement to acquire Cloudmark for $110 million in cash, which strengthens its industry-leading investment in messaging security and threat intelligence.
Deutsche Bank has a $140 price target, and the consensus target is $121.44. Shares closed Friday at $121.36.
Deutsche Bank team is very positive on this smaller and perhaps less known company. Mimecast Ltd. (NASDAQ: MIME) provides cloud security and risk management services for corporate information and email. It offers Mimecast Email Security services, including targeted threat protection that extends traditional gateway security to protect organizations against targeted attacks, audit and reporting, and enables administrators and security specialists to monitor and report attempted attacks. It also offers URL Protect, which tackles threat from emails containing malicious links.
Last year the company introduced the latest capability of its Targeted Threat Protection service, Internal Email Protect, the first-to-market cloud-based security service providing threat capabilities for internally generated email. Internal Email Protect allows customers to detect and remediate security threats that originate from their users’ email accounts.
The $40 Deutsche Bank price target compares with the $37.77 consensus target. Shares closed at $37.35.
While probably not a household name, this company could be a target of private equity. OKTA Inc. (NASDAQ: OKTA) is an independent provider of identity for the enterprise. Its Okta Identity Cloud platform provides identity management solutions that enable customers to secure their users and connect them to technology and applications. It also connects enterprises to their customers, employees, contractors and partners.
The product allows users to access a range of cloud applications, websites, mobile applications and service from various devices. Its platform is used by information technology (IT) organizations to secure their enterprise and by developers to build customer-facing websites and applications.
Okta Identity Cloud consists of a suite of products to manage and secure identities. It offers a range of products, such as Adaptive Multi-Factor Authentication, Universal Directory, Lifecycle Management products, Single Sign-On, application program interface (API) Access Management and Mobility Management.
The Deutsche Bank price target is $46. The consensus target is $42.43, and shares closed last at $40.59.
While the whirlwind around the top stocks in the industry has really slowed from the 2013 to 2015 pace, the need is increasing every year, and the recent huge Equifax breach makes that even more evident. These top stocks offer investors solid ways to play the segment in a multitude of areas, and growth could return in a big way in 2018.