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The growing threat of cyberattacks has placed cybersecurity at the forefront of global priorities. As the digital landscape evolves, so too does the sophistication of cyber threats, targeting everything from critical infrastructure to small businesses. This escalating risk has not only heightened awareness but has also fueled a race to bolster digital defenses. In a world where the cost of a breach can be catastrophic, cybersecurity has emerged as the cornerstone of resilience in the digital age.
Projections for the cybersecurity market reflect this urgency, with revenue expected to soar in the coming years. By the end of this year, global cybersecurity revenue is anticipated to reach a whopping $185.7 billion and climb to a staggering $271.9 billion by 2029, growing at a steady compound annual growth rate (CAGR) of 7.9% between 2024 and 2029. This surge in growth underscores the rising investments in cutting-edge technologies and strategies as businesses and governments double down on cybersecurity to outpace an ever-evolving threat landscape.
Amid this backdrop, recently, KeyBanc Capital Markets has taken a keen interest in two cybersecurity heavyweights: Fortinet, Inc. (FTNT) and Okta, Inc. (OKTA). The firm upgraded both these cybersecurity names to “Overweight,” citing a brighter outlook for identity and firewall solutions heading into 2025 as IT, as well as security and analytics, continue to take center stage behind generative artificial intelligence (AI). Let’s take a closer look at these two names.
Cybersecurity Stock #1: Fortinet
California-based Fortinet, Inc. (FTNT) is revolutionizing cybersecurity by seamlessly merging networking and security into one powerful mission: protecting people, devices, and data everywhere. With an industry-leading portfolio of over 50 enterprise-grade solutions, Fortinet has earned the trust of more than half a million customers worldwide. Its innovative approach extends beyond technology, with the Fortinet Training Institute equipping individuals with the skills to tackle cyber threats and pursue new career opportunities.
Backed by FortiGuard Labs, its cutting-edge AI and machine learning research arm, Fortinet delivers unparalleled threat intelligence and protection, ensuring its customers stay one step ahead in the ever-evolving cyber landscape. Valued at a market cap of around $73.9 billion, shares of this cybersecurity giant have climbed an impressive 65% over the past year, easily outshining the broader S&P 500 Index’s ($SPX) 26% annual return.
Fortinet’s Q3 earnings report, released on Nov. 7, exceeded Wall Street’s expectations on both the top and bottom lines, sparking a strong investor rally with shares jumping over 9% in the following trading session. The cybersecurity firm reported total revenue of $1.5 billion, reflecting a solid 13% year-over-year growth, just edging past analysts’ forecasts. Product revenue saw a modest annual rise of 1.7%, while service revenue surged by a notable 19.1% year over year, demonstrating Fortinet’s continued strength in its service offerings.
On an adjusted basis, the company’s earnings of $0.63 per share demonstrated a remarkable 53.7% year-over-year growth and crushed Street estimates by roughly 21.5% margin. Additionally, Fortinet’s cash-generation capabilities were equally impressive, with operating cash flow soaring to $608.1 million during the quarter, up from $551.2 million a year earlier. Free cash flow also surged, climbing to $571.8 million compared to $481.1 million registered in the same quarter of fiscal 2023.
Reflecting on the Q3 performance, CEO Ken Xie said, “We are pleased to report another strong quarter as non-GAAP operating margin increased 830 basis points year over year to a company record of 36%, while revenue exceeded the high end of our guidance range.” The CEO further pointed out that the company's strategic investments in the fast-evolving markets of Unified Secure Access Service Edge (SASE) and Security Operations have paid off, driving strong results and expanding its market share in Secure Networking.
Looking forward to fiscal 2024, management anticipates revenue to range between $5.856 billion and $5.916 billion, while non-GAAP gross margin is forecast to land between 80.3% and 81.3%. Additionally, the company expected non-GAAP EPS for the entire year to be between $2.20 and $2.28.
On Dec. 19, KeyBanc analysts upgraded Fortinet, anticipating a larger-than-expected "industry-wide refresh opportunity" in cybersecurity, which they believe is not yet fully reflected in current estimates. Plus, Fortinet’s strong position in the SASE market, coupled with its competitive edge, further strengthens its growth prospects. With these factors in play, KeyBanc issued an "Overweight" rating and set a $115 price target for the stock.
Overall, Wall Street appears optimistic about FTNT stock, with a consensus “Moderate Buy” rating. Of the 37 analysts offering recommendations, 13 advise a “Strong Buy,” one gives a “Moderate Buy,” 22 advocate “Hold,” and the remaining one suggests a “Strong Sell.”
While the average analyst price target of $96.97 indicates only marginal potential upside from the current price levels, KeyBanc’s Street-high price target of $115 suggests that FTNT could rally as much as 18% from here.
Cybersecurity Stock #2: Okta
Based in California, Okta, Inc. (OKTA) is redefining identity management on a global scale, offering an innovative suite of products to secure and simplify digital access. From Single Sign-On and Adaptive Multi-Factor Authentication to API Access Management and Universal Directory, Okta empowers organizations to protect identities across cloud, mobile, and on-premises environments. Its cutting-edge solutions, including Okta Identity Governance, Advanced Server Access, and Attack Protection, ensure seamless and secure user experiences while combating evolving cyber threats.
Presently, the company’s market cap stands at approximately $14.3 billion. While the stock has been in negative territory over the past year, slipping almost 7%, Okta has bounced back over the past three months, posting impressive returns of roughly 9.7%, soaring beyond the broader SPX’s 4.5% gains during the same time frame.
After Okta dropped its impressive fiscal 2025 Q3 earnings report on Dec. 3, which crushed Wall Street’s top and bottom line forecasts, shares of the cybersecurity company took off more than 5% in the subsequent trading session. The company’s total revenue reached $665 million, reflecting a solid 14% year-over-year increase, and comfortably topped the Street's estimated figure of $649.6 million. Subscription revenue also surged by 14% annually, hitting $651 million.
Additionally, the company’s remaining performance obligations (RPO), representing the subscription backlog, surged to approximately $3.7 billion, marking a 19% increase compared to the same period last year. Meanwhile, adjusted EPS came in at $0.67, marking 52.3% year-over-year improvement, and smashed estimates by a notable 14.8% margin.
During the quarter, Okta showcased impressive cash generation, with net cash from operations reaching $159 million. This marked a slight increase from $156 million in the same quarter last year. Free cash flow followed a similar trajectory, totaling $154 million, compared to $150 million in fiscal 2024. As of Oct. 31, the company’s financial foundation remained rock-solid, holding $2.2 billion in cash, cash equivalents, and short-term investments.
Commenting on the Q3 performance, CEO Todd McKinnon noted, “Our solid Q3 results were underpinned by continued strong profitability and cash flow.” He further emphasized that the company’s strategic investments in its partner ecosystem, public sector, and large customers have played a key role in driving top-line growth.
Looking ahead to fiscal 2025, the company expects total revenue to range between $2.595 billion and $2.597 billion, representing a growth rate of 15% year-over-year. Plus, adjusted EPS for the entire year is projected to land between $2.75 and $2.76, while free cash flow margin is forecast to come in at approximately 25%.
As for KeyBanc, analysts are highly optimistic about Okta, citing the company's expanding dominance as a “top priority within the security” sector. They view the stock’s current risk-reward profile as particularly attractive, especially when compared to its peers. The analysts also see potential for headwinds to ease by fiscal 2026, thanks in part to strength in small and medium-sized businesses, as indicated by a recent survey.
Furthermore, Okta's identity governance and privileged access management products are expected to make significant contributions, while its Customer Identity and Access Management division could see accelerated growth with an enhanced go-to-market strategy. Encouraged by these factors, KeyBanc upgraded Okta’s rating to "Overweight" and assigned a price target of $115, signaling strong confidence in the company’s future trajectory.
OKTA stock has a consensus “Moderate Buy” rating overall. Out of the 37 analysts covering the stock, 16 recommend a “Strong Buy,” two suggest a “Moderate Buy,” 18 advocate “Hold,” and the remaining one gives a “Moderate Sell” rating.
The average analyst price target of $103.50 indicates potential upside of 24% from the current price levels. However, the Street-high price target of $140 suggests that the stock could rally as much as 68%.
