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4 Security Stocks to Watch in a Prospering Industry
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The Zacks Security industry is benefiting from solid demand for cybersecurity offerings as well as the heightening need for secure networks and cloud-based applications amid the pandemic-induced remote-working and online learning wave. Companies in this space are benefiting from the rising demand for IT security solutions owing to the surging number of data breaches. Increasing requirements for privileged access security on the back of digital transformation and cloud migration strategies are also fueling demand for cybersecurity solutions.
Industry participants like Fortinet (FTNT - Free Report) , CyberArk (CYBR - Free Report) , Qualys (QLYS - Free Report) and Radware (RDWR - Free Report) are gaining from the aforementioned trends. However, pandemic-triggered supply chain disruptions and component shortages might negatively impact the industry’s prospects in the near term. The emergence of the more transmissible variants and a spike in infection rates across many parts of the world (like Shanghai and Hong Kong), resulting in lockdowns, might further affect the supply chain, which does not augur well for the industry.
Industry Description
The Zacks Security industry comprises companies offering on-premise and cloud-based security solutions. These can be used for identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, to name a few. Industry participants offer different types of security solutions, most of which can be used interchangeably. These solutions can be roughly categorized into three types — Computer Security, Cybersecurity and Information Security. Computer Security solutions provide protection from vulnerabilities in both the software and hardware of a computer system. Cybersecurity includes sections like web security, network security, application security, container security and information security. Information Security is concerned with any form of data-security issue, be it physical or digital data.
4 Trends Influencing the Future of the Security Industry
Rising Cyber Threats Boost Demand for IT Security: Frequent cyberattacks are spurring demand for security solutions. This worrisome trend has not only affected certain companies but also threatened the national security of some countries. Notably, the prevailing global health crisis has given rise to newer forms of hacking and cybercrimes, which are difficult for firms and individuals to grapple with. The firms operating in the security industry are working hard to address these concerns. Hence, these companies are positioned to benefit as protection against spear phishing, credential-based attack, account takeover and ransomware attacks, among others has become the need of the hour.
Cloud Migration Hurting On-Premise Security Demand: Traditional spending on on-premise information security hardware and software is reducing amid the COVID-induced remote-working wave and accelerated cloud migrations for digital transformation.
Strong IT Spending Forecast Bodes Well: The latest forecast for worldwide IT spending by Gartner is positive for industry players. Worldwide IT spending is anticipated to be $4.43 trillion in 2022, suggesting an increase of 4% from 2021. Gartner in its research report stated that the ongoing geopolitical disruptions, inflationary pressure and protracted pandemic-induced supply chain troubles will not affect the recovery seen in IT spending globally. This bodes well for the industry’s performance.
Supply Chain Issues to Hurt Near-Term Growth: Despite strong demand for security solutions, companies in the space might not be able to fully capitalize on opportunity due to continued supply-chain constraints for components. It is expected that the industry will continue to witness supply-chain constraints throughout calendar 2022. Moreover, resurgence in COVID-19 cases due to the emergence of the more transmissible COVID-19 variants and a spike in infection rates across many parts of the world (like Shanghai and Hong Kong) is expected to cause some manufacturing, port and logistics disruptions in the near term. These factors are expected to curb industry participants’ revenue growth in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #101, which places it among the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Security industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has gained 25.6% during this period compared with the S&P 500’s 1.7% decline and the broader sector’s 13.3% depreciation.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing price-to-sales ratio (P/S), which is a commonly-used multiple for valuing the Security stocks, the industry is currently trading at 12.01, higher than the S&P 500’s 4.22 and the sector’s 4.11.
Over the last five years, the industry has traded as high as 15.34X, as low as 5.65X and recorded a median of 8.34X, as the charts below show.
TTM Price-to-Sales Ratio (Industry Vs S&P 500)
TTM Price-to-Sales Ratio (Industry Vs Sector)
4 Stocks to Watch
CyberArk: The company offers services, which protect organizational privileged accounts from cyber-attacks. Its products include CyberArk Shared Technology Platform, Privileged Account Security Solution and Sensitive Information Management Solution.
CyberArk is benefiting from rising demand for cyber security solutions owing to the long list of data breaches. Increasing demand for privileged access security on the back of digital transformation and cloud migration strategies remain a key growth driver. Moreover, strong presence across verticals such as banking, healthcare, government and utilities is safeguarding CyberArk from the negative effects of the coronavirus outbreak.
The consensus mark for CyberArk’s 2022 loss has been widened by a penny to 76 cents per share over the past 30 days. Shares of CYBR have increased 5.5% over the past year.
Price and Consensus: CYBR
Radware: The company develops, manufactures and markets products that manage and direct Internet traffic among network resources to enable continuous access to websites and other services, applications and content based on Internet protocol.
Radware is gaining traction from stellar software growth, backed by a solid uptick in public cloud and security offerings. Also, it is benefiting from the growing demand for consistent application security across multi-cloud environments, which is aiding revenue growth.
This Zacks Rank #2 stock has declined 6.3% in the past year. The consensus mark for the ongoing year’s earnings has been revised 4 cents downward to 88 per share in the past seven days.
Price and Consensus: RDWR
Fortinet: This Zacks Rank #3 (Hold) company is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. It is benefiting from rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely.
Fortinet is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings. Moreover, continued deal wins, especially those of high value, are a key driver. Higher IT spending on cybersecurity is further expected to aid Fortinet to grow faster than the security market. Also, focus on enhancing its unified threat management (UTM) portfolio through product development and acquisitions is a tailwind for Fortinet.
The consensus mark for Fortinet’s 2022 earnings has been revised upward by a penny to $4.95 per share over the past seven days. Shares of FTNT have rallied 30.4% over the past year.
Price and Consensus: FTNT
Qualys: This Zacks Rank #3 company offers cloud security and compliance solutions that enable organizations to identify security risks to their information technology infrastructures, thus helping protect their IT systems and applications from cyber-attacks.
Qualys is gaining from the surging demand for security and networking products amid the coronavirus crisis as a massive global workforce is working remotely. Accelerated digital transformations by organizations are also fueling demand for the company’s cloud-based security solutions.
The Zacks Consensus Estimate for 2022 earnings has remained unchanged at $2.92 per share over the past 60 days. Qualys’ shares have risen 18.4% in the past year.
Price and Consensus: QLYS
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4 Security Stocks to Watch in a Prospering Industry
The Zacks Security industry is benefiting from solid demand for cybersecurity offerings as well as the heightening need for secure networks and cloud-based applications amid the pandemic-induced remote-working and online learning wave. Companies in this space are benefiting from the rising demand for IT security solutions owing to the surging number of data breaches. Increasing requirements for privileged access security on the back of digital transformation and cloud migration strategies are also fueling demand for cybersecurity solutions.
Industry participants like Fortinet (FTNT - Free Report) , CyberArk (CYBR - Free Report) , Qualys (QLYS - Free Report) and Radware (RDWR - Free Report) are gaining from the aforementioned trends. However, pandemic-triggered supply chain disruptions and component shortages might negatively impact the industry’s prospects in the near term. The emergence of the more transmissible variants and a spike in infection rates across many parts of the world (like Shanghai and Hong Kong), resulting in lockdowns, might further affect the supply chain, which does not augur well for the industry.
Industry Description
The Zacks Security industry comprises companies offering on-premise and cloud-based security solutions. These can be used for identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, to name a few. Industry participants offer different types of security solutions, most of which can be used interchangeably. These solutions can be roughly categorized into three types — Computer Security, Cybersecurity and Information Security. Computer Security solutions provide protection from vulnerabilities in both the software and hardware of a computer system. Cybersecurity includes sections like web security, network security, application security, container security and information security. Information Security is concerned with any form of data-security issue, be it physical or digital data.
4 Trends Influencing the Future of the Security Industry
Rising Cyber Threats Boost Demand for IT Security: Frequent cyberattacks are spurring demand for security solutions. This worrisome trend has not only affected certain companies but also threatened the national security of some countries. Notably, the prevailing global health crisis has given rise to newer forms of hacking and cybercrimes, which are difficult for firms and individuals to grapple with. The firms operating in the security industry are working hard to address these concerns. Hence, these companies are positioned to benefit as protection against spear phishing, credential-based attack, account takeover and ransomware attacks, among others has become the need of the hour.
Cloud Migration Hurting On-Premise Security Demand: Traditional spending on on-premise information security hardware and software is reducing amid the COVID-induced remote-working wave and accelerated cloud migrations for digital transformation.
Strong IT Spending Forecast Bodes Well: The latest forecast for worldwide IT spending by Gartner is positive for industry players. Worldwide IT spending is anticipated to be $4.43 trillion in 2022, suggesting an increase of 4% from 2021. Gartner in its research report stated that the ongoing geopolitical disruptions, inflationary pressure and protracted pandemic-induced supply chain troubles will not affect the recovery seen in IT spending globally. This bodes well for the industry’s performance.
Supply Chain Issues to Hurt Near-Term Growth: Despite strong demand for security solutions, companies in the space might not be able to fully capitalize on opportunity due to continued supply-chain constraints for components. It is expected that the industry will continue to witness supply-chain constraints throughout calendar 2022. Moreover, resurgence in COVID-19 cases due to the emergence of the more transmissible COVID-19 variants and a spike in infection rates across many parts of the world (like Shanghai and Hong Kong) is expected to cause some manufacturing, port and logistics disruptions in the near term. These factors are expected to curb industry participants’ revenue growth in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #101, which places it among the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Security industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has gained 25.6% during this period compared with the S&P 500’s 1.7% decline and the broader sector’s 13.3% depreciation.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing price-to-sales ratio (P/S), which is a commonly-used multiple for valuing the Security stocks, the industry is currently trading at 12.01, higher than the S&P 500’s 4.22 and the sector’s 4.11.
Over the last five years, the industry has traded as high as 15.34X, as low as 5.65X and recorded a median of 8.34X, as the charts below show.
TTM Price-to-Sales Ratio (Industry Vs S&P 500)
TTM Price-to-Sales Ratio (Industry Vs Sector)
4 Stocks to Watch
CyberArk: The company offers services, which protect organizational privileged accounts from cyber-attacks. Its products include CyberArk Shared Technology Platform, Privileged Account Security Solution and Sensitive Information Management Solution.
CyberArk is benefiting from rising demand for cyber security solutions owing to the long list of data breaches. Increasing demand for privileged access security on the back of digital transformation and cloud migration strategies remain a key growth driver. Moreover, strong presence across verticals such as banking, healthcare, government and utilities is safeguarding CyberArk from the negative effects of the coronavirus outbreak.
Currently, CyberArk carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for CyberArk’s 2022 loss has been widened by a penny to 76 cents per share over the past 30 days. Shares of CYBR have increased 5.5% over the past year.
Price and Consensus: CYBR
Radware: The company develops, manufactures and markets products that manage and direct Internet traffic among network resources to enable continuous access to websites and other services, applications and content based on Internet protocol.
Radware is gaining traction from stellar software growth, backed by a solid uptick in public cloud and security offerings. Also, it is benefiting from the growing demand for consistent application security across multi-cloud environments, which is aiding revenue growth.
This Zacks Rank #2 stock has declined 6.3% in the past year. The consensus mark for the ongoing year’s earnings has been revised 4 cents downward to 88 per share in the past seven days.
Price and Consensus: RDWR
Fortinet is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings. Moreover, continued deal wins, especially those of high value, are a key driver. Higher IT spending on cybersecurity is further expected to aid Fortinet to grow faster than the security market. Also, focus on enhancing its unified threat management (UTM) portfolio through product development and acquisitions is a tailwind for Fortinet.
The consensus mark for Fortinet’s 2022 earnings has been revised upward by a penny to $4.95 per share over the past seven days. Shares of FTNT have rallied 30.4% over the past year.
Price and Consensus: FTNT
Qualys: This Zacks Rank #3 company offers cloud security and compliance solutions that enable organizations to identify security risks to their information technology infrastructures, thus helping protect their IT systems and applications from cyber-attacks.
Qualys is gaining from the surging demand for security and networking products amid the coronavirus crisis as a massive global workforce is working remotely. Accelerated digital transformations by organizations are also fueling demand for the company’s cloud-based security solutions.
The Zacks Consensus Estimate for 2022 earnings has remained unchanged at $2.92 per share over the past 60 days. Qualys’ shares have risen 18.4% in the past year.
Price and Consensus: QLYS