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Goldman Sachs Explains Why You Should ‘Buy’ These 2 Cybersecurity Stocks


Our digital world runs on computer technology and that technology will become more and more autonomous and pervasive. And that only underscores the continued importance of online security. With the rise of digital automation, it is more important than ever to start reinforcing digital protections now.

Against this backdrop, Gabriela Borges of Goldman Sachs has her eye on the cybersecurity sector. The analyst sees a number of industry dynamics in favor of long-term investors, including: “(1) The multi-product platform has gained momentum and is getting closer to solving the retention challenge Innovation in sub-segments is historically defined by boom and bust product cycles. (2) The industry is less cyclical as the mix moves from hardware to SaaS, while providing a consistent prioritization of security spending in the enterprise budget.”

Borges doesn’t leave us with a macro view of the industry. The analyst goes on to delve into the micro level and picks out two Cybersecurity stocks which she sees as a potential winner for a long time.

In fact, Borges isn’t the only one praising these stocks. According to the TipRanks platform, each boasts a “Strong Buy” consensus rating from the broader community of analysts and offers double-digit upside potential for the year ahead. Let’s take a closer look.

CrowdStrike Corporation (CRWD)

The first Goldman pick we’ll be looking at is CrowdStrike, maker of the premium Falcon Endpoint Protection line and a leader in the cybersecurity ecosystem. CrowdStrike products have set an industry standard for online network protection and digital security, and include a variety of cloud-based modules for a variety of applications. The Company offers products by subscription through the Software-as-a-Service model.

The company reported a fair number of metrics in its most recent quarterly report, for the third quarter of fiscal year 2023. Revenue increased 53% year-over-year, at $581 million, and fixed revenue year-on-year, at $2.34 billion, up 54%. In a nutshell, CrowdStrike reported third-quarter financial earnings of 40 cents per share, by non-GAAP measures, beating the consensus estimate of 32 cents per share.

However, the company issued guidance on revenue that fell short of estimates. Specifically, Q4 revenue is expected to be between $619.1 million and $628.2 million, below Street’s estimate of $634.2 million.

While acknowledging that current market conditions act as headwinds for the stock, Gabriela Borges of Goldman Sachs believes it is well-positioned for strong growth.

“We expect growth to slow… mainly due to slower growth in endpoint TAM and slower growth in market share – and we believe the market understands this well. Over the medium term, 1) we expect to see steady growth in endpoints (80%+ ARR), based on our bottom-up market share model showing world endpoint technologies the next generation accounts for nearly 50% of the current market share; 2) we expect to see massive growth in the cloud, where our industry conversations show CrowdStrike is competitive given its core competencies in collecting and monitoring data,” Borges commented.

“Combined with strong FCF generation today and a reset of numbers for Q3 2023 (Adjusted Street 2023 revenue down 3% over last 3 months), we believe risk/share The bonus is attractive,” the analyst sums up.

Overall, Borges believes this is a stock worth holding. The analyst rates CRWD stock as Buy and her $141 price target suggests a 22% gain over the next 12 months. (To see Borges’ achievements, click here)

Overall, CrowdStrike has 37 recent analyst reviews on file – including 32 Buy reviews and just 5 Hold reviews, for a Strong Buy consensus rating. The stock is selling for $115.12 and the median price target, currently at $160.26, implies a 39% gain in one year. (See CRWD stock forecast)

Palo Alto Network (PANW)

The next stock on Goldman’s radar is Palo Alto Networks, another big name in digital security. The combination of the company’s advanced network technology and firewall products offers customers a high level of protection for online systems, including protection against malware attacks. and enables automation of online and network security activities. Palo Alto also offers enterprise-grade security software for home users and small businesses who want to protect their network and cloud applications.

Over the past few years, Palo Alto has built a steadily increasing revenue stream based on its product line and industry-leading reputation. In the most recently reported quarter, for Q1 of FY23, the company reported revenue of US$1.56 billion, based on total invoices of US$175 billion. These numbers represent year-over-year increases of 25% and 27%, respectively. The company’s backlog, a key indicator of future work, and revenue stood at $8.3 billion as of October 31 of last year.

At the bottom line, Palo Alto posted a correction of 83 cents per share, beating estimates of 69 cents per share. The company ended its first fiscal quarter with $1.2 billion in free cash and nearly $2.1 billion in cash on hand. We’ll see next week, when Palo Alto reports earnings for fiscal Q2, how its performance picks up.

In the meantime, Goldman’s Borges sees a clear path forward for the company and presents it in an easy-to-understand way: “We see Palo Alto as a portfolio of end-to-end, networking products. and the cloud at different stages of product development, each leveraging domain-focused expertise in user interface/user experience (UIUX), marketing, information security, and more. intelligence and machine learning. Coupled with a successful M&A strategy, we expect to see ~20% sustainable growth over the next 5 years with top software KPIs, this year’s path to GAAP profitability, and positive capital allocation. “

Tracking from here, Borges has a Buy rating on PANW stock, with a one-year price target of $205, suggesting a potential upside of 19%.

The Strong Buy consensus rating for this stock shows that the Street is clearly in line with Goldman’s bullish view; out of 29 recent analyst reviews, 27 are Buy and only 2 are Hold. PANW stock has an average price target of $211.04, implying a 19% gain from its trading price of $172.02. (See PANW stock forecast)

To find great ideas for trading stocks at attractive valuations, visit TipRanks’ Best stocks to buyone tool that unifies all of TipRanks’ equity insights.

deny the responsibility: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.

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