CrowdStrike, SentinelOne slip on Deutsche Bank downgrade, citing competition
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CrowdStrike (NASDAQ:CRWD) and SentinelOne (NYSE:S) slipped in premarket trading on Monday as Deutsche Bank downgraded the pair over worries over cybersecurity.
Analyst Brad Zelnick lowered his rating on CrowdStrike (CRWD) and SentinelOne (S) to hold from buy and cut the price targets to $115 and $15, noting that the cybersecurity space looks weaker than it did six to nine months ago.
"Cybersecurity while seemingly defensive is certainly more vulnerable than investors perceived 6-9 months ago, with security practitioners increasingly behind held accountable to ROI expectations and pursuing consolidation opportunities to extract value from already-procured technology," Zelnick wrote in a note to clients. "We believe cybersecurity will prove to be later cycle vs. other areas of software and we therefore see incremental risk into 2023."
Zelnick said CrowdStrike (CRWD) is "no longer alone at the party," enjoying hyper growth prior to SentinelOne's (S) arrival and is cautious on the company's ability to penetrate a broader total addressable market.
"We appreciate CrowdStrike's broad multi-module product portfolio, however we question the extent to which it can continue benefiting as a consolidator vs. being itself consolidated - i.e. by Microsoft (MSFT)," Zelnick added.
For SentinelOne (S), Zelnick said the company is "centered within" Microsoft's (MSFT) cross hairs and does not look "well positioned as a candidate for consolidation."
"There is no doubt SentinelOne (S) exhibits strong technology efficacy however what it is lacking vs. peers in our view is a more established brand, extensive list of reference customers (both enterprise and federal), and broader platform maturity," Zelnick explained.
Earlier this month, investment firms Bank of America and Morgan Stanley each downgraded SentinelOne (S), citing worries over competition.
Analysts are largely bullish on CrowdStrike (CRWD). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a STRONG BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates CRWD a HOLD.