As part of a deep dive on the security-software sector, Truist analyst Joel Fishbein upgraded both
while repeating his bullish stance on a number of other stocks, including both
In a 295-page report, Fishbein writes that all four companies—he describes them as “the four horsemen”—have exposure to high-growth parts of the security business and should benefit from a strong cycle for enterprise spending.
Fishbein sees growing demand in particular for software that addresses an emerging set of security challenges—in particular “zero trust” remote access, and secure connections to cloud services. Identity management is another area that will benefit from recent high-profile breaches, he writes.
That said, Fishbein notes that overall valuations for security stocks have reached unprecedented levels. “The scarcity story of too many investors chasing too few names has driven up valuations,” he writes. “Companies are staying private longer, but a full class of [initial public offerings] this year with high valuations is bringing moths to the public-market flame. Moreover, in this low-interest-rate environment, abundant funding is available from the venture-capital community.”
Fishbein advises investors to “stay selective” on security stocks. He thinks the industry overall will grow in the 7%-10% range through 2023, but notes that spending is shifting to new areas. “Overall, company budgets are still growing rather than shrinking, but organizations are spending more prudently,” he writes .
Fishbein has 11 Buy-rated stocks in the group:
(CRWD), Cloudflare (NET), Okta (OKTA),
(PANW), Proofpoint (PFPT),
(VRNS) and Zscaler (ZS).
On Cloudflare, Fishbein lifts his rating to Buy from Hold, with a new target of $110, up from $75. “Cloudflare has built a global cloud platform that delivers a broad range of network services to businesses of all sizes around the world – making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing and integrating individual network hardware.” he writes. “Our conversations with customers indicate broad-based strength in Cloudflare’s business.”
On Zscaler, he likewise boosts his rating to Buy from Hold, with a new target of $225, up from $175. “Zscaler is benefiting from a favorable demand backdrop following the
hack and secular tailwinds of digital transformation, cloud security, and Zero Trust architecture,” he writes. “Our conversations with customers indicate large deals will likely lead to upside to current consensus estimates.”
Despite the upgrades, Cloudflare stock is down 3.6% to $69.74, while Zscaler is off 3.3% to $177.00 in recent Wednesday trading.
Write to Eric J. Savitz at [email protected]