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CyberArk Software (CYBR - Analyst Report) is well set on the growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. Also, its shares have posted a strong six months return of 28.1% and a year-to-date return of 14.2%.

The company posted a positive earnings surprise in all the last four quarters with an average surprise of 68.2%. The company has a market cap of $1.73 billion with long-term earnings growth expectation of 21.1%.

Over the last 60 days, both estimates for CyberArk were revised upward for fiscal 2016. The Zacks Consensus Estimate for fiscal 2016 increased 16.4% to 78 cents.

What’s Behind the Continued Momentum?

The company released better-than-expected second-quarter fiscal 2016 results on Aug 9, 2016.  Adjusted earnings per share (excluding amortization of intangible assets and other one-time items but including stock-based compensation) on a proportionate tax basis of 21 cents a share came ahead of the Zacks Consensus Estimate and the year-ago quarter figure of 15 cents per share.

CyberArk’s revenues grew 38.5% year over year to $50.4 million and surpassed the Zacks Consensus Estimate of $48 million. The company’s revenues increased on a year-over-year basis, primarily due to better-than-expected demand for its privileged account security platform and its solid business model.

The company provided an encouraging third-quarter and full year 2016 guidance. For the third quarter of fiscal 2016, CyberArk expects revenues in the range of $51.5 million to $52.5 million, representing 29% to 31% year-over-year growth. The Zacks Consensus Estimate is pegged at $52 million. The company expects non-GAAP earnings for the third quarter of fiscal 2016 in the range of 21 to 23 cents per share, higher than the Zacks Consensus Estimate of 18 cents.

For full year 2016, CyberArk expects revenues in the range of $210.5 million to $212.5 million, representing 31% to 32% year-over-year growth. The Zacks Consensus Estimate is pegged at $212 million. The company expects non-GAAP earnings for fiscal 2016 in the range of $1.03 per share to $1.07 per share, much higher than the Zacks Consensus Estimate of 78 cents

Going forward, the demand for cyber security is on the rise. The long list of data breaches has brought to light the fact that a company’s financial well-being, brands and reputation are today increasingly exposed to sophisticated cyber threats.  The advent of cloud computing and the idea of sharing resources to lower cost has further increased demand for adequate security policies, protocols and products. So companies are allotting increasing portions of their IT budgets for security solutions. Given that cyber security has become a mission-critical, high-profile requirement, some analysts expect the market to grow at a CAGR of 9.8% to reach about $170 billion by the end of this decade. CyberArk is growing rapidly in this space on the back of its privileged access management (PAM) solutions. According to IDC market scope, “CyberArk is the PAM pure-play ‘big gorilla’ with the most revenue and largest customer base.”

CyberArk has made strategic acquisitions to boost growth. In Aug 2015, the company acquired all the shares of Cybertinel. In Sep 2015, the company acquired certain assets of Agata Ltd (“Agata”). In Oct 2015, CyberArk completed the acquisition of privately held Viewfinity Inc., in an all-cash deal worth $30.5 million. The transaction is expected to enhance CyberArk’s capabilities in the online security space. Viewfinity is one of the leading providers of privilege management and application control software that restricts attackers at the initial point of entry. We believe that these acquisitions will not only expand CyberArk’s capabilities but its customer base as well.

CyberArk has a strong balance sheet with ample liquidity position and no debt obligation. Cash and short-term investments were $224.3 million as of Jun 30, 2016, which translates to around 85% of the total assets. Moreover, the company generated $21.4 million of cash flow from operational activities in the first half of 2016. It is to be noted that the company has been able to regularly increase its cash and marketable securities, which reached $238.3 million at the end of 2015 from $65.4 million at the end of 2013. The increasing liquidity and cash flow trend reflects that the company is making investments in the right direction. Moreover, since it carries no long-term debt, the cash is available for pursuing strategic acquisitions, investment in growth initiatives and distribution to shareholders.

Furthermore, investments in product suite and go-to-market are the other positives for the company. However, competition from International Business Machines Corporation (IBM - Analyst Report) , Microsoft Corporation (MSFT - Analyst Report) and Oracle Corporation (ORCL - Analyst Report) remains a concern.


Currently, CyberArk has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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