The tech sector has witnessed a significant sell-off this year amid the Fed's aggressive rate hikes to combat the uncomfortable inflation. The International Monetary Fund reduced its global growth predictions and warned of a severe global recession if policymakers managed the fight against inflation poorly.
However, continued digital transformation across industries, growing usage of data-driven solutions, and considerable investments in cloud-based technology should drive the software industry's growth. According to Gartner, worldwide software spending is projected to grow 9.6% to $806.8 billion in 2022.
Therefore, we think it could be wise to scoop up the shares of quality software stocks Fortinet Inc. (FTNT), Check Point Software Technologies Ltd. (CHKP), and Radware Inc. (RDWR) to capitalize on the industry’s growth prospects.
Fortinet Inc. (FTNT)
FTNT offers comprehensive, integrated, and automated cybersecurity solutions worldwide. It provides FortiGate hardware and software licenses for various security and networking services such as firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network acceleration.
This month, FTNT announced that it had issued over 1 million Network Security Expert (NSE) certifications, demonstrating its commitment to closing the cybersecurity skills gap.
Last month, FTNT announced improved AIOps capabilities throughout its entire networking portfolio, including the industry's first AI-based network operations management for 5G/LTE gateways.
Combined with the most recent AIOps enhancements to Fortinet's Secure SD-WAN and Wired/Wireless LAN portfolios, network operations teams now have access to even more dynamic insights and event correlation across their entire network, making FortiAIOps the industry's most comprehensive AIOps network management platform.
During the second quarter ended June 30, 2022, FTNT's revenue increased 28.6% year-over-year to $1.03 billion. Its non-GAAP operating income surged 25.6% year-over-year to $255.4 million. The company's non-GAAP net income grew 22.3% from the year-ago value to $194.1 million, while its non-GAAP EPS grew 26.3% from the prior-year quarter to $0.24.
Street expects FTNT's revenues and EPS to rise 31.1% and 31.2% year-over-year to $4.38 billion and $1.05, respectively, in fiscal 2022.
FTNT's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FTNT also has an A grade for Quality and a B for Sentiment. Within the D-rated Software – Security industry, it is ranked #4 of 26 stocks.
To see additional POWR Ratings for Growth, Momentum, Value, and Stability for FTNT, click here.
Check Point Software Technologies Ltd. (CHKP)
CHKP creates, markets, and supports a comprehensive range of IT security products and services globally. The company provides network security, endpoint security, data security, and management solutions.
Yesterday, CHKP launched a new Managed Security Service Providers (MSSPs) Program that eliminates administrative constraints while empowering a partner-led service-led approach.
The initiative provides partners with the capabilities needed for complete XDR/XPR, MDR/MPR, events management, and SOC certainty through CHKP's industry-leading prevention-first security operations suite, Horizon while giving operational peace of mind.
CHKP’s total revenue increased 9% year-over-year to $571 million for the second quarter ended June 30, 2022. The company reported a non-GAAP operating income of $249 million. Its non-GAAP net income came in at $209 million, while its non-GAAP EPS grew 1.9% from the year-ago value to $1.64.
Its EPS is expected to grow 9.8% year-over-year to $7.93 in the next year. In addition, its revenue is expected to grow 6.9% year-over-year to $2.32 billion in fiscal 2022.
It is no surprise that CHKP has an overall B rating, which equates to a Buy in our POWR Ratings system. The stock also has an A grade for Quality. In the same industry, it is ranked #2.
Beyond the POWR Ratings grades I have just highlighted, you can view CHKP ratings for Growth, Value, Sentiment, Momentum, and Stability.
Radware Inc. (RDWR)
RDWR and its subsidiaries design, manufacture, and market cyber security and application delivery systems for cloud, physical, and software-defined data centers worldwide. Most of the company's goods are sold to independent distributors, including value-added resellers, original equipment manufacturers, and system integrators.
This month, RDWR announced that German industrial services provider Bilfinger SE had selected RDWR's DefensePro DDoS Protection and Cloud DDoS Protection Service to strengthen cyber defenses across its global hybrid IT infrastructure.
Last month, RDWR expanded its partnership with a Fortune 500 financial services company. The multinational industry leader expanded its investment in RDWR's Application Protection-as-a-Service to include RDWR's Cloud Web Application Firewall (WAF), API Protection, and Bot Manager, in addition to DDoS protection.
Also, last month, RDWR announced the opening of a new cloud security center in Italy. The center, which will be located in Milan, will protect customers from the OWASP Top 10 Web Application Security Risks for 2021, the OWASP Top 21 Automated Threats to Web Applications, the OWASP API Security Top 10, as well as volumetric distributed denial-of-service (DDoS) and application-level DDoS attacks.
During the second quarter ended June 30, 2022, its revenue increased by 7.8% year-over-year to $75.11 million. Its operating income came in at $1.58 million. The company reported a non-GAAP net income of $3.2 million, while its non-GAAP EPS amounted to $0.18.
Analysts expect RDWR’s revenues and EPS to rise 5.1% and 15.1% year-over-year to $318.42 million and $0.84, respectively, in fiscal 2023. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in three of the trailing four quarters.
RDWR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. RDWR also has a B grade for Quality. The stock is ranked #1 in the same industry.
In addition to the POWR Ratings grades I have just highlighted, you can see the RDWR ratings for Momentum, Sentiment, Stability, Growth, and Value.
FTNT shares were trading at $48.87 per share on Friday afternoon, down $0.33 (-0.67%). Year-to-date, FTNT has declined -32.01%, versus a -23.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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