Fortinet, Check Point, CrowdStrike have 'favorable setups' going into Q2: MS
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Investment firm Morgan Stanley said on Monday that several cybersecurity companies had "favorable setups" going into earnings season, while others may have issues.
Analyst Hamza Fodderwala said that companies such as Palo Alto Networks (PANW), Fortinet (NASDAQ:FTNT), Check Point Software (NASDAQ:CHKP) and CrowdStrike (NASDAQ:CRWD) are best positioned amid a "challenging" environment for the industry as a whole this quarter. 
"We'd be selective going further out the risk curve and expect another tough quarter in Q2, but see a better setup for new bookings in [the second-half] (mainly Q4) on improving macro visibility, pent-up demand/budget flush and easier comps," Fodderwala wrote in an investor note.
Delving deeper, Fodderwala said his second-quarter checks on Fortinet (FTNT) were "solid" and saw a sequential uptick, as the company gained market share in security and networking spending.
"Estimates also appear beatable with consensus forecasts implying a -3% YoY decline in gross new product bookings," Fodderwala wrote.
For Check Point (CHKP), Fodderwala said there was a noticeable uptick in his second-quarter checks, with positive data on Avanan and CloudGuard.
"With low expectations embedded in valuation at 11X EV/CY24 FCF, we see greater potential for upside surprise nearer term, while our longer-term view remains unchanged," Fodderwala added.
Fodderwala also noted that he saw upside for the attach rate of CrowdStrike's (CRWD) Falcon Complete, which has roughly twice the average selling price compared to the core EDR product.
"With [annual recurring revenue] missing buyside expectations for 2 out of the past 3 quarters and the Net New ARR comp 13pts tougher in Q2, we think expectations are much lower and consensus NNARR down -18% YoY appears beatable," he wrote.
Fodderwala also noted that checks into Palo Alto Networks (PANW) remain "strong" and also saw a sequential uptick as the company continues to benefit from more customers consolidating on its platform. 
Morgan Stanley's Fodderwala said he could look to get more constructive on companies like Okta (OKTA), Tenable (TENB), Rapid7 (RPD) and Varonis (VRNS) as checks showed mixed results in the quarter.
Conversely, companies like Zscaler (ZS), Cloudflare (NET), Qualys (QLYS), CyberArk (CYBR), SentinelOne (S) have less favorable setups for a variety of different reasons, including slowing growth.
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