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On July 19, cybersecurity giant CrowdStrike Holdings, Inc. (CRWD) triggered a major IT outage with a faulty software update, hitting devices running on Microsoft (MSFT) platforms worldwide. This fiasco erased nearly $50 billion from Microsoft’s market cap in a single day and sent the airline industry into chaos for several days.
According to estimates by cloud insurance firm Parametrix, this global IT outage could lead to a staggering $5.4 billion in direct financial losses for Fortune 500 companies. But despite a few negative notes since the outage, CRWD still stands out as a top-rated stock on Wall Street, with a "Strong Buy" rating overall.
Despite analysts’ optimism, CrowdStrike seems to have fallen out of favor among investors, with the shares sliding roughly 35% since their pre-bug close. For investors feeling wary of CrowdStrike after this high-profile incident, here are three alternative "Strong Buy" picks in the cybersecurity industry to consider.
Cybersecurity Stock #1: Zscaler
Commanding a market cap of around $27.1 billion, San Jose-based Zscaler, Inc. (ZS) is at the forefront of cybersecurity innovation. The company’s flagship Zero Trust Exchange platform is the top cloud security solution globally, shielding thousands of customers from cyber threats and data loss. By enabling secure connections across over 150 data centers worldwide, Zscaler transforms digital security, making agility, efficiency, and resilience the new standard for its clients.
Shares of this cybersecurity giant have gained roughly 6.4% over the past 52 weeks.
From a valuation perspective, ZS stock is currently trading at 16.52 times sales, a bargain compared to its own five-year average of 29.26x.
After Zscaler’s stellar fiscal Q3 earnings release on May 30, the stock surged 8.5% in the next trading session. Revenue soared to $553.2 million, up 32.1% year over year, and outpacing Wall Street’s expectations. This robust topline growth was driven by surging demand for the Zero Trust Exchange platform.
Adjusted EPS hit $0.88, marking an impressive 83.3% annual increase and smashing forecasts by a 35.9% margin. During the quarter, Zscaler’s free cash flow jumped to $123.1 million, boosting its margin to 22%, up from $73.9 million and 18% in the year-ago quarter, respectively. Cash reserves hit $2.2 billion as of April 30, showcasing the company’s financial strength and liquidity.
On June 11, ZS stock jumped more than 2% as investors celebrated Zscaler’s strategic moves to bolster its cloud security leadership. The company’s expanded partnerships with tech giants Alphabet (GOOGL) and Nvidia (NVDA) promise to enhance its threat defense capabilities and optimize enterprise IT, showcasing a powerful blend of innovations that significantly strengthen the Zero Trust Exchange platform’s position in cybersecurity.
For Q4, management projects revenue to range between $565 million and $567 million, while adjusted EPS is expected to arrive between $0.69 and $0.70. Looking ahead to fiscal 2024, management expects revenue to range between $2.140 billion and $2.142 billion. Adjusted EPS is anticipated to land between $2.99 and $3.01.
ZS stock has a consensus “Strong Buy” rating overall. Of the 38 analysts covering the stock, 27 advise a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining 10 recommend a “Hold.”
The average analyst price target of $232.14 indicates a potential upside of 33.2% from the current price levels. The Street-high price target of $290 suggests that ZS stock could rally as much as 66.5%.
Cybersecurity Stock #2: Leidos Holdings
With a market cap of $19.5 billion, Virginia-based Leidos Holdings, Inc. (LDOS) is a global powerhouse in science and technology, serving the defense, intelligence, civil, and health sectors. With over 400 locations across 30 countries, Leidos Holdings is constantly expanding its global footprint and fortifying international connections. The company excels in cybersecurity, delivering cutting-edge solutions across multiple domains.
Shares of Leidos have rallied 43% over the past 52 weeks and 32.1% on a YTD basis, easily overshadowing the broader S&P 500 Index’s ($SPX) respective gains of roughly 18.3% and 13.5% during both periods.
In terms of valuation, the stock is trading at 17.12 times forward earnings and 1.28 times sales, a slight discount to its industry peers.
On July 26, Leidos announced a quarterly dividend of $0.38 per share, set to be distributed to its shareholders on Sept. 27. This brings its annualized dividend to $1.52, offering a solid 1.05% dividend yield. With a conservative payout ratio of just 18.12%, Leidos is channeling most of its earnings into growth while also keeping ample room for future dividend boosts.
However, dividends aren’t the only way the company returns value to its shareholders. In Q2, Leidos rewarded shareholders with $114 million in share repurchases alongside $51 million in quarterly dividends.
Leidos reported its Q2 earnings results on July 30, which soared beyond Wall Street’s expectations. Revenue of $4.1 billion represented an 8% jump from the previous year’s quarter. Strong demand, especially in managed health services, drove this increase. On the profitability side, the company’s adjusted earnings of $2.63 per share showcased a notable improvement of 46.1% year over year, and blew past consensus projections by a solid 16.4% margin.
Adjusted EBITDA hit a record $559 million, up 33% year over year, pushing the margin to 13.5%. This impressive profitability was fueled by higher volumes, better incentives, and enhanced cost control. Plus, during the quarter, the company achieved a strong free cash flow of $351 million.
For fiscal 2024, management forecasts revenue to range between $16.1 billion and $16.4 billion, while adjusted EPS is anticipated to land between $8.60 and $9.00. Analysts tracking Leidos project the company’s profit to climb 20.3% year over year to $8.78 per share in fiscal 2024 and rise another 3.8% annually to $9.11 per share in fiscal 2025.
Overall, LDOS stock has a consensus “Strong Buy” rating. Out of the 14 analysts covering the stock, 12 recommend a “Strong Buy,” and the remaining two have a “Hold” rating.
The average analyst price target of $163.75 indicates a potential upside of 14% from the current price levels. The Street-high price target of $187 suggests that LDOS could rally as much as 30.2%.
Cybersecurity Stock #3: CyberArk Software
Valued at around $10.8 billion by market cap, Israel-based CyberArk Software Ltd. (CYBR) is a global leader in identity security. With advanced privilege controls, CyberArk provides exceptional protection for every identity, whether human or machine, across business applications, remote teams, hybrid clouds, and the DevOps lifecycle.
Shares of CyberArk have climbed 53% over the past 52 weeks and 15.2% on a YTD basis, outperforming the broader SPX over both time frames.
On May 2, the company revealed its Q1 earnings results, which exceeded Wall Street’s expectations. CyberArk’s revenue of $221.6 million soared 37% year over year, as subscription revenue skyrocketed 69% annually to $156.2 million.
During the quarter, the company reported adjusted EPS of $0.75, crushing Wall Street’s forecast by a 173.2% margin and marking a dramatic turnaround from last year's adjusted loss of $0.17 per share. As of March 31, the company held $1.4 billion in cash, cash equivalents, short-term deposits, and marketable securities. Plus, net cash from operations surged to $68.6 million, a massive leap from $5.8 million recorded in the same quarter last year.
CEO Matt Cohen said, “Our first quarter results reflect our focus on driving growth and profitability at scale. We posted 54 percent Subscription ARR growth and 37 percent revenue growth while significantly expanding operating margins and growing net cash provided by operating activities.”
The company is gearing up to unveil its fiscal Q2 earnings results before the market opens on Thursday, Aug. 8. For Q2, management projects total revenue to range between $215 million and $221 million, reflecting 22% to 26% annual growth. Also, adjusted EPS is anticipated to arrive between $0.34 and $0.44.
Looking forward to fiscal 2024, total revenue is anticipated to range between $928 million and $938 million, reflecting annual growth of 23% to 25%. In addition, adjusted EPS for the entire year is forecast to range between $1.88 and $2.07.
Overall, CYBR stock has a consensus “Strong Buy” rating. Out of the 28 analysts covering the stock, 26 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and one has a “Hold” rating.
The average analyst price target of $293.56 indicates a potential upside of 15.4% from the current price levels. The Street-high price target of $317 suggests that CYBR could rally as much as 24.6%.
On the date of publication, Anushka Mukherji 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.
