In today’s digital world, the need for cybersecurity is ever-present. Many of our critical systems, from higher levels of government and finance to the automated systems that run traffic lights, rely on online connectivity, neglecting the basics of securing computer networks. Recent events, including election integrity, severe macroeconomic volatility, and ongoing questions about Russia’s war in Ukraine, underscore the importance of cybersecurity.
Against this backdrop of accelerating tailwinds, cybersecurity has become a top priority for tech executives. The situation has caught the attention of JP Morgan analyst Brian Essex. he said: With full-year budget growth and multiples below pre-pandemic levels, we see some compelling opportunities in security. ”
Essex has not left us with a macro view of the sector. The analyst further drills down to the micro level and he singles out two cybersecurity stocks that could be winners in the coming months. These are buy-rated stocks that, in analysts’ view, have promising growth potential. Let’s take a closer look.
Fortinet Corporation (FTNT)
Start with Fortinet, known for high-end digital security products such as firewalls, endpoint security, intrusion prevention, antivirus systems, and zero trust access. Fortinet products and services are used to keep data, networks and system users safe and secure. Over the past few years, Fortinet’s quarterly revenue has steadily increased as the demand for cybersecurity rises.
The numbers are self-explanatory. In 2019, Fortinet’s total revenue was his $2.2 billion, before the corona pandemic forced a major shift to online and network connectivity. In 2021, the last full year for which data is available, the company’s top line exceeded $3.3 billion. In its last reported quarter, Q3 2022, it peaked at $1.15 billion, up 33% year-over-year. The company will report his fourth quarter and his full year 2022 data on February 7. We will see how the trendline continues.
In the meantime, it’s helpful to look at the drill down on the Q3 data. Product revenue was $468.7 million, up 39% year-over-year, while service revenue rose 28% to $680.8 million. Billings increased 33% to $1.41 billion, while deferred income, a measure of future work and earnings, rose to $4.19 billion, up 35% from the same period last year. The company’s non-GAAP diluted EPS was 33 cents, up 65% from the third quarter of 2021.
Fortinet also has extensive funding to accommodate contingencies. The company earned him $483 million in cash in the third quarter of 2022, which included free cash flow totaling $395.2 million. This was after using $500 million in cash to buy back shares. At the end of the quarter, the company had $964 million in cash and liquid assets on hand.
JP Morgan’s Essex began its coverage of Fortinet with an Overweight (or Buy) rating, with a price target of $69, suggesting a 31% upside potential over the year. (Click here to see Essex achievements)
In support of this stance, Essex writes: 2025. In our view, demand for core firewalls, segmentation, SD-WAN, and OT security is strong enough to support double-digit product revenue growth with accelerated subscriptions and higher gross margins. , we believe that the fundamentals will continue to strengthen in the future. ”
Tech stocks tend to get a lot of attention, and Fortinet is no exception. The stock has his 20 recorded analyst reviews, including his 13 buys against seven holds, recommending the company a moderate buy consensus. . The average price target for the stock is $63.56, indicating up to 21% growth potential from the current stock price of $52.86. (look FTNT stock price forecast)
Octa Co., Ltd. (OKTA)
The second stock we’re looking at is Okta, a cloud computing company that offers security software for user authentication and identity controls. The company’s cloud-based software enables enterprise customers to embed secure user authentication and identity controls directly into their apps, devices, and website services. Okta has been in business since his 2009, has been a public institution since 2017 and now boasts over 17,000 customers.
The cybersecurity industry was valued at over $200 billion last year and is expected to reach $266 billion by 2027. Okta has carved a piece of that pie, with total revenue for his $1.3 billion in fiscal year 2022. The company has surpassed that total in the current fiscal year. In his first three quarters of the 23rd fiscal year, Okta has already earned him $1.35 billion in revenue. Okta will release full year data for his 2023 fiscal year in March of this year.
Results for the third quarter of fiscal 2023, the last reported quarter, showed a topline of $481 million, up 37% year over year. This included subscription revenue of $466 million, up 38% year over year. The company’s remaining performance obligations (how it reports its backlog) increased 21% year over year to $2.85 billion, a metric that bodes well for future revenues and earnings. Okta’s non-GAAP EPS is now at breakeven, improving compared to the 7 cents EPS loss reported in the prior-year period.
Okta’s cash flow was modest in the third quarter, with net cash from operating activities of $10 million and free cash flow of $6 million. It was much more impressive at $70 million.
Among the bulls is JP Morgan’s Brian Essex, who describes Okta as “the bargain market leader.” In more detail, Essex said: Longer term, we believe decentralized identities could also become a meaningful underappreciated trend, and Okta is one of the best vendors to benefit from each of these trends. I think that…”
“We believe multiple compressions with significant opportunities are overkill given the company’s market leadership position, de-risking growth expectations and valuation at meaningful discounts. While significantly below the rest of the coverage universe, our view is 4.9x EV/NTM revenue compared to 6.1x for its security software peers, setting the upside to OKTA at It is favorable compared to the current share price level.”
Putting some hard numbers to this stance, Essex has an overweight (i.e. buy) rating on OKTA and a price target of $90, meaning a 25% return over the course of the year. doing.
Essex leads the Bulls in OKTA. Based on 29 reviews, including 18 buys and he holds 11, analyst consensus is that the stock is a medium buy. (look OKTA stock price forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. This content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.