JP Morgan says now could be a good time to buy cybersecurity stocks; These Are 2 Names With Promising Growth Potential
In today’s digital world, there will always be a need for cybersecurity. So many of our essential systems, everything from the governmental and financial levels to automated systems that control traffic lights, depend on online connections that we overlook the basics of security. your computer network. Recent events, including ongoing questions about election integrity, profound macroeconomic upheaval, and Russia’s war in Ukraine, have simply emphasized the importance of cybersecurity. .
Amid these accelerating headwinds, cybersecurity has become a top priority for tech executives. The situation caught the attention of JP Morgan analyst Brian Essex, who said: “With less than $200 billion in corporate spending to address more than a trillion dollars in estimated costs every day. year and the destruction of value associated with cybercrime, we expect security budget growth to outpace IT. budget growth for the full year, and with multiples now below pre-pandemic levels, we see some compelling opportunities in the Security sector.”
Essex does not leave us with a macro view of the field. The analyst goes on to delve into the micro level and picks out two Cybersecurity stocks which he sees as a potential winner in the coming months. From an analyst’s perspective, these are Buy-rated stocks with promising growth potential. Let’s take a closer look.
Fortinet, Inc. (FTNT)
We’ll start with Fortinet, which is known for its line of premium digital security products, including firewalls, endpoint security, intrusion prevention, anti-virus systems, and untrusted access. trust. Fortinet products and services are used to secure and protect data, networks, and system users. Over the past few years, Fortinet has seen a steady increase in quarterly revenue due to growing demand for cybersecurity.
A look at the numbers brings it out. In 2019, before the corona pandemic forced a big shift to networking and online, Fortinet had total revenue of $ 2.2 billion; in 2021, the last full year for which data is available, the company had sales in excess of $3.3 billion. In the most recently reported quarter, Q3 of 22, top revenue came in at $1.15 billion, up 33% year over year. The company will report Q4 and full year 2022 data on February 7; then we will see how the trend line is continuing.
In the meantime, check out the detailed Q3 data for information. Product revenue, at $468.7 million, increased 39% year-on-year, while services revenue grew 28% to $680.8 million. Invoices grew 33%, to $1.41 billion, and deferred revenue, a measure of future work and income, came to $4.19 billion, up 35% from the previous quarter. The company’s non-GAAP diluted EPS, was 33 cents, up 65% from Q3 FY21.
Fortinet also has a variety of pocket money to respond to unexpected situations. The company raised $483 million in cash from operations in the third quarter of 2022, totaling $395.2 million in free cash. This is after spending $500 million in cash buying back shares. The company had $964 million in cash and liquid assets on hand at the end of the quarter.
JP Morgan’s Essex began coverage of Fortinet with an Overweight (i.e. Buy) rating and a target price of $69, suggesting a one-year upside potential of 31%. (To see Essex’s achievements, click here)
Supporting this stance, Essex writes, “We find current valuations attractive as the company moves towards its medium-term goal of $10 billion in bills, $8 billion in revenue and FCF margins. adjusted to moderate to high 30% for 2025. In our view, demand for core firewalls, shards, SD-WAN and OT security is strong enough to support product revenue growth double-digit product with subscription acceleration and gross margin expansion driving fundamental strength moving forward.”
Tech stocks tend to get a lot of attention, and Fortinet is no exception – this stock has 20 recorded analyst reviews and these include 13 Buys versus 7 Holds to put. gave the company a Buy Moderate consensus recommendation. The stocks have an average price target of $63.56, showing ~21% upside from their current price of $52.86. (See FTNT . Stock Forecast)
Okta, Inc. (OKTA)
The second stock we’re looking at is Okta, a cloud computing company that provides secure software for user authentication and identity control. The company’s cloud-based software enables business customers to provide secure user authentication and identity controls, directly integrated into applications, devices, and website services. Okta started its business in 2009, became a public organization in 2017 and now has more than 17,000 customers.
The cybersecurity industry was valued at over $200 billion last year and is expected to hit $266 billion by 2027. Okta is cutting a piece of that pie for itself, and in fiscal 2022, the company hits total sales. $1.3 billion in revenue. The company is beating that total in the current financial year; in the first three quarters of fiscal year ’23, Okta generated $1.35 billion in revenue. Okta will release full-year data for fiscal year 2023 next March.
Results from the most recently reported quarter, the third quarter of fiscal year 2023, showed peak revenue of $481 million, with a 37% increase year-over-year. This includes $466 million in subscription revenue, up 38% year-over-year. The company’s remaining performance obligations — the way it reports backlogs — rose 21% year-on-year, to $2.85 billion, a metric that bodes well for revenue and earnings for the year. future. Okta now has a breakeven non-GAAP EPS, an improvement from the 7 cent EPS loss reported in the year-ago period.
Okta’s Q3 cash flow was modest, at $10 million in net operating cash and $6 million in free cash, but the company’s cash assets at the end of the third quarter were much more impressive. at $2.47 billion in cash and cash equivalents.
Among the bulls is JP Morgan’s Brian Essex, who describes Okta as a ‘bear market leader’. Going into detail, Essex said of the company: “We believe that digital transformation and Cloud adoption will continue to drive demand for cloud-native Identity Management technology going forward. In the long term, we believe that Distributed Identity may well be an underappreciated trend, and we consider Okta to be one of the best-positioned vendors to benefit from each of these trends. …”
“We believe multiple compression is excessive compared to the physical opportunity considering the company’s market leadership, risk-free growth expectations, and pricing at a meaningful discount. The stock has significantly underperformed the S&P 500, as well as the rest of its coverage, but with EV/NTM Sales of 4.9x, compared with 6.1x for its peers. The company’s Security Software sector, in our view, is a bullish setup against OKTA compared to the current stock price,” Essex added.
Given some defining numbers on this stance, Essex places an Overweight (i.e. Buy) rating on OKTA, which, along with a $90 price target, implies a 25% gain over a one-year period.
Essex leads the Bulls on OKTA. The stock has a Moderate Buy from analyst consensus, based on 29 reviews including 18 Buys and 11 Holds. (See OKTA Stock Forecast)
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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.
