As IT budgets tighten, cybersecurity companies see growing demand
MF3d/E+ via Getty Images
With enterprise customers still showing signs of tightening up on their IT spending budgets, cybersecurity companies are still seeing healthy demand for their products and services heading into the current round of earnings reports.
According to Morgan Stanley analyst Hamza Fodderwala, checks on cybersecurity deals during the first quarter "indicate better-than-feared" demand in the first quarter of the year over what were mostly beatable estimates for the sector. The demand scenario comes during what Fodderwala said is "typically the seasonally slowest quarter of the year" for security and enterprise software.
"The environment is clearly much tougher than a year ago," Fodderwala said, in a research report. "But [it] hasn't gotten incrementally worse since last quarter and is mostly stable, unlike other areas of software."
Among cybersecurity companies of note, Foorrtinet (NASDAQ:FTNT) has seen investor sentiment "has flipped from largely negative to positive over the last three months", and that industry checks "reflect strong demand across both [the] U.S. and Europe." Fodderwala holds an overweight rating on Fortinet's (FTNT) shares, and raised his price target on the company's stock to $77 a share from $70.
Fodderwala also said that Cyberark (NASDAQ:CYBR) is still facing concerns about its exposure to financial services customers, but there is still a "favorable setup" for the company heading into its quarterly results due to the competitive environment it is in. Fodderwala also gives Cyberark (CYBR) an overweight rating, with a price target of $173 a share.
CheckPoint Software (NASDAQ:CHKP) got a bit more of a cautious view from Fodderwala, who has an underweight rating and $116-a-share price on the company's stock. CheckPoint (CHKP) got dinged for what Fodderwala called "slower firewall demand" and more competition that "raises the risk around continued market share losses.
Fodderwala said Rapid7 (NASDAQ:RPD) is seeing "potential signs of stabilization" as conversations with business partners suggest that the threat-detection company has gotten through the sales issues that affected it during the second half of 2022. Fodderwala has an equal weight rating and price target of $48 share on Rapid7's (RPD) stock.
A sign that security remains an issue even for the companies involved in security could be found as Cisco Systems (CSCO) shares fell more than 4% Wednesday. Cybersecurity official with the U.S. and U.K. governments said a state-supported group with ties to Russia's military has been exploiting a six-year-old flaw in some Cisco (CSCO) routers in order to run surveillance on American and European governmental organizations.