An increasing amount of consumer data is now stored in the “cloud,” and the transactions involving that data have created a booming industry. But while this data has made life easier, it is also a threat when put in the hands of those who seek to exploit it.
With the Equifax (EFX - Free Report) leak and the discovery of Russian interference in the 2016 presidential election as a few notable catalysts, the matter of cybersecurity has been thrust into the national spotlight. Consumers are becoming more aware about the importance of protecting their data, leaving the security industry positioned for dynamic growth.
According to research from Gartner, worldwide enterprise security spending is projected to total $96.3 billion in 2018, representing an 8 percent increase from 2017. This sentiment was echoed on Thursday by Goldman Sachs (GS - Free Report) analyst Arjun Menon, who forecasts 9 percent growth in cybersecurity revenue, 3 percent higher than expectations for the broader tech market.
With the 2018 midterms around the corner, tensions are no doubt running that further interference could take place. A recent GS IT spending survey found that 45 percent of chief information officers (CIOs) expect to increase security spending for their firms.
Taking these trends into account, we’ve highlighted three stocks that are showing strong security activity and building momentum going into election season.
CyberArk Software (CYBR - Free Report)
CyberArk Software IT security products include physical, virtual, cloud protection, sensitive information management, and account security solutions. It offers its services to firms in various industries as well as government agencies. As of the end of December, it boasted 3,650 customers, including nearly 50% of Fortune 100 and 30% of Global 2000 companies.
CYBR is holding a Zacks Rank #1 (Strong Buy) and holds explosive potential. The company has seen three positive earnings estimate revisions in the past 60 days, with one coming in the last week. Based on current analyst estimates we expect CyberArk to report EPS growth of 16.3% and revenue growth of 21.3% this fiscal year.
CyberArk is trading at a notable premium to industry competitors, but the firm is coming off a strong earnings report, issued strong guidance, made key strategic acquisitions, and is gaining customer accounts. In other words, the company’s growth prospects in the face of rising demand make it a compelling investment.
Qualys, Inc. (QLYS - Free Report)
Qualys provides cloud security and compliance solutions to organizations. It offers products for vulnerability management, policy compliance, web application scanning, malware detection, and associated security products.
Shares of the company have soared in the last twelve months, rising over 120% during the period. Based on current analyst estimates, we expect EPS and revenue growth of 9% and 20.4% for the fiscal year. The company has seen positive earnings estimate revisions across all four forecasting periods (the current quarter, following quarter, current year, and following year), making it a Zacks Rank #1 (Strong Buy).
Similarly to CYBR, Qualys is trading at a premium to the industry. But at its Investor Day last month, QLYS offered a long-term guidance of 20% annual top-line growth through 2021 as its cloud functionality continues to expand. These signs bode well for Qualys and make it worth consideration.
Fortinet, Inc. (FTNT - Free Report)
Fortinet provides network security appliances and United Threat Management (UTM) network security solutions to enterprises, service providers, and government entities worldwide. It maintains a focus on selling subscription-based services that include firewall, antivirus, intrusion, and various other forms of both hardware and software-based protection.
Fortinet is the current market leader in UTM, holding nearly a fifth of the market share in what according to industry analysis is poised to be one of the fastest growing segments in network security. While it is losing some business to competitors in the industry, a still-growing number of accounts raised guidance are healthy signs.
Sitting at a Zacks Rank #2 (Buy), FTNT has seen three positive earnings estimate revisions each for both the current and ensuing fiscal years. Based on current estimates, we expect EPS and revenue growth of nearly 30% and 17%, respectively. Shares of the firm’s stock have surged nearly 66% in the past 12 months.
Furthermore, with a Beta of 0.71, Fortinet is the most stable mover of the three for more conservative investors.
Investors may be surprised to discover that none of these firms have missed earnings expectations in over three years and carry a combined total of zero debt. Still, it is worth noting that all also trade a notable premium to the industry. While growth prospects appear very promising across the board, this may not be the best investment for more risk-averse investors.
Nevertheless, given recent events, the current geopolitical climate and overall industry trends, the cybersecurity industry is one that investors should not overlook. At the very least, investors should continue to monitor these firms, the industry, and any further developments that may result in consumers hoping to better protect their data.
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