With the digital transformation and artificial intelligence (AI) revolution, more businesses are turning to digital technologies, cloud computing, and remote work models. However, this increases the risk of cyberattacks like ransomware, data breaches, and phishing.
The demand for advanced cybersecurity solutions to secure networks, cloud environments, and endpoints is on the rise. The global cybersecurity market is expected to grow at a compounded annual growth rate of 9.4%, and is expected to be worth $298.5 billion by 2028. This trend is expected to benefit cybersecurity companies that provide cloud-based solutions. Here are three great cybersecurity stocks to grab this month.
#1. Palo Alto Networks
Palo Alto Networks (PANW) has established itself as an important contender in the cybersecurity market. It provides an extensive cybersecurity product suite that protects clouds, networks, and endpoints.
Valued at $108.7 billion, Palo Alto’s stock has gained 14.8% year-to-date, outperforming the S&P 500 Index's ($SPX) 14.4% gain.
The company's next-generation firewalls, cloud security platforms, and endpoint protection services are widely used by enterprises, governments, and organizations around the world.
In the most recent fourth quarter of fiscal 2024, the company exceeded Wall Street's expectations, reporting significant earnings growth. Total revenue increased 12% year-over-year to $2.2 billion, driven by strong demand for cybersecurity solutions across all business segments. That resulted in a 57.8% increase in GAAP (generally accepted accounting standards) net income to $1.01 per share.
PANW's focus on subscription-based services has resulted in consistent and predictable revenue streams, with subscription revenue up 21%. Furthermore, remaining performance obligations (RPO), which measure revenue to be recognized in the future, increased by 20% year on year (YoY), reaching $12.7 billion.
Management anticipates revenue growth of between 13% and 14% in fiscal 2025, with earnings increasing by 9% to 11%. By comparison, analysts predict that revenue and earnings will rise by 13.7% and 10.7%, respectively.
PANW stock is expensive, trading at 53 times forward 2025 earnings. However, given the company's consistent growth, leadership position, and expanding market opportunities, many analysts believe the premium is reasonable.
Overall, Wall Street rates PANW a “strong buy,” highlighting the company's strong fundamentals and growth prospects. Of the 45 analysts covering the stock, 31 rate it a “strong buy,” two suggest a “moderate buy,” and 12 rate it a “hold.”
The mean target price of $376.93 implies an upside of 11.1% above current levels. PANW's Street-high target price of $420 suggests a potential price increase of 23.8% over the next 12 months.
#2. Cloudflare
Founded in 2009, Cloudflare (NET) is a growing company in the rapidly evolving cybersecurity space. Cloudflare provides a global network that enables businesses to optimize their web applications by increasing speed, improving security, and lowering costs.
Valued at $25.8 billion, Cloudflare stock has dipped 7.1% YTD, underperforming compared to the broader market's gain.
Its product suite includes content delivery services, DNS (domain name system) management, the SASE & SSE platform, DDoS (distributed denial-of-service) attack prevention, and web performance optimization, among others.
Cloudflare has delivered strong revenue growth, driven by increased demand for its services. Between fiscal 2018 and 2023, revenue has increased at a compounded growth rate of 46%.
In the second quarter, the company posted revenue of $401 million, representing a 30% year-over-year increase. This strong growth reflects Cloudflare's ability to scale its customer base, particularly with large enterprise clients.
The company is still not consistently profitable on a GAAP net income basis. However, NET's GAAP net loss decreased to $0.04 per share in Q2, compared to $0.28 in the year-ago quarter.
Cloudflare, a growth stock, is focused on increasing revenue and profitability while working toward positive free cash flow (FCF). The company generated $38.3 million in FCF during the quarter.
Analysts predict that Cloudflare’s revenue will increase by 27.9% in 2024, and 27.1% in 2025. Valued at 15 times forward sales, NET stock is reasonably valued with an impressive growth trajectory, and looks poised to thrive in the cybersecurity and cloud infrastructure industries.
Overall, Wall Street rates NET a “moderate buy.” Of the 30 analysts covering the stock, nine rate it a “strong buy,” two suggest a “moderate buy,” 16 rate it a “hold," one rates it a “moderate sell,” and two suggest a “strong sell.”
The mean target price of $92.15 implies an upside potential of 19.3% above current levels. The Street-high target price of $135 suggests that NET could potentially rise 74.8% over the next 12 months.
#3. Fortinet
Fortinet (FTNT) specializes in providing cybersecurity solutions, including network security, endpoint protection, cloud security, and more. Its flagship product, the FortiGate next-generation firewall, is a network security industry leader that assists organizations in defending against a variety of threats such as malware, ransomware, and DDoS attacks.
Valued at $57.4 billion, Fortinet stock has gained 28.6% YTD, outperforming the broader equities market.
In the second quarter, total revenue increased 11% YoY to $1.43 billion, driven by a 20% increase in services revenue from the year-ago quarter. However, product revenue fell 4.4% to $451.9 million.
Total billings, or outstanding invoices yet to be realized as revenue, remained flat at $1.54 billion. GAAP net income increased 48.4% to $0.49 per share. The company's FCF totaled $318.9 million.
Management anticipates total billings of $6.4 billion to $6.6 billion in 2024. Revenue could range between $5.8 billion and $5.9 billion, compared to $5.3 billion in 2023. Similarly, analysts who follow Fortinet stock expect a 10.4% increase in revenue in 2024, followed by a 12.2% increase in 2025.
Fortinet stock appears to be expensive, trading at 36 times forward 2024 earnings. However, investors who are willing to take the risk can reap long-term benefits from investing in this cybersecurity stock. The company is well-positioned to profit from the growing demand for cybersecurity solutions with its innovative product offerings.
Overall, Wall Street rates FTNT a “moderate buy.” Of the 36 analysts covering the stock, 12 rate it a “strong buy,” one suggests a “moderate buy,” and 23 rate it a “hold.”
Fortinet stock has surpassed its mean target price of $72.29. The Street-high target price of $87 suggests a potential price increase of 15.6% over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
