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As cyber threats continue to evolve, two top companies have stood out with their proactive approach to cybersecurity, coupled with continuous innovation and adaptability. Industry peers Fortinet (FTNT) and CrowdStrike Holdings (CRWD) are dedicated to providing robust solutions tailored to modern security challenges. However, Wall Street is slightly more inclined towards one of these names over the other.
Compared to the S&P 500 Index’s ($SPX) gain of 18%, CrowdStrike has gained a massive 99.9% year-to-date, and is trading close to its 52-week high. Meanwhile, Fortinet shares are up just 8.8%, owing largely to management’s cautious outlook for the year.
Let's see which of these two cybersecurity stocks is a better long-term buy-and-hold, according to Wall Street.
The Case for CrowdStrike
At the heart of CrowdStrike’s offerings is the Falcon platform, a comprehensive cloud-native solution that uses artificial intelligence (AI), machine learning (ML), and behavioral analytics to proactively detect, prevent, and respond to cyber threats.
What sets CrowdStrike apart is its focus on endpoint security. CrowdStrike’s platforms not only stop existing threats, but also predict and prevent future attacks.
CRWD impressed investors with its second-quarter fiscal 2024 results, featuring a 37% year-over-year jump in total revenue to $732 million. Annual recurring revenue (ARR) also increased by 37% to $2.9 billion, demonstrating its knack for retaining customers.
Furthermore, CrowdStrike has been assisting its existing customers in upgrading to more cloud-based modules. Notably, in Q3, approximately 63% of its subscription customers used five or more of its modules. This figure was 59% in the year-ago quarter. In addition, the customer base with at least seven modules increased to 24% from 20% in Q2 fiscal 2023.
Based on its outstanding performance this year, investors and analysts are eagerly awaiting CRWD's Q3 fiscal 2024 earnings, set to be released on Nov. 28.
Management anticipates total revenue for Q3 to be in the $775 million to $778 million range, representing a 33.4% increase if the upper end of the target is met. Additionally, Q3 earnings per share (EPS) could surge by 85% year-over-year to $0.74. For the full fiscal year, revenue could arrive in the range of $3.03 billion to $3.04 billion, with EPS in the $2.80-$2.84 range. Meanwhile, analysts predict $0.74 EPS on $777.4 million in revenue for Q3.
What's more, analysts expect CrowdStrike's revenue to increase by 36% to $3.04 billion in fiscal 2024, up from $2.24 billion in fiscal 2023. Analysts predict adjusted EPS of $2.83 in fiscal 2024, up from $0.79 per share in fiscal 2023. Analysts' consensus predictions for the year are within management's forecast range.
Is CRWD a Buy, According to Wall Street?
Overall, Wall Street rates CRWD a “strong buy.” Out of the 37 analysts covering the stock, 33 have a “strong buy” rating, 2 have a “moderate buy” rating, and 2 have a “hold” rating. With the outstanding surge in its share price this year, CRWD has surpassed its average target price of $200.76.
In the near term, CRWD's third-quarter results will determine whether the stock can rise any further and reach the high target price of $245, implying a 16% upside potential from current levels.
CrowdStrike is priced at 13 times forward 2025 projected sales and 59 times forward earnings. Though it looks expensive, it seems reasonably valued for a high-performing growth stock with AI opportunities. Currently, analysts predict its fiscal 2025 revenue will increase by 28% to $3.9 billion, and earnings will rise by 24% to $3.53 per share.
The Case for Fortinet
Fortinet provides robust network security solutions, with a wide range of products catering to various aspects of cybersecurity. Its forte lies in network security, with a focus on firewalls, VPNs, and intrusion prevention systems. The company's Unified Threat Management (UTM) solutions provide all-in-one protection, simplifying security operations for businesses.
Furthermore, its product, the FortiGate firewall, is known for its reliability, scalability, and comprehensive protection against a wide array of threats. In the third quarter, total revenue grew 16% year-over-year to $1.3 billion, mostly driven by its Services revenue, which increased 28% from Q3 2022.
Total billings in the quarter increased 5.7% to $1.49 billion. Billings are invoices that have been sent to customers but have not yet been recognized as revenue.
While Fortinet's third-quarter results were satisfactory, management's revision of full-year guidance weighed on the company's stock performance. For the full year, management expects revenue in the range of $5.27 billion to $5.33 billion, down from the previous estimate of $5.35 billion to $5.45 billion.
Meanwhile, billings are expected to be in the $6.09 billion to $6.23 billion range, down from $6.49 billion to $6.59 billion. Adjusted EPS for the year could be in the $1.54 to $1.56 range. Talking about the guidance on the Q3 earnings call, management highlighted, “We continue to see increased deal scrutiny and longer sales cycles, which is constraining our near-term results.”
Meanwhile, analysts predict a 20% year-over-year increase in revenue to $5.3 billion, and a 31% increase in EPS to $1.56 for the full year 2023.
That said, Fortinet expects the easing of macro headwinds and the benefits of its cloud-based security platforms, SASE and SecOps, to boost billings growth in 2023, leading to double-digit growth by the second half of 2024.
Is FTNT a Buy, According to Wall Street?
Analysts have assigned a consensus “moderate buy” rating to FTNT, with an average target price of $58.90. This indicates an upside potential of 10.2% over the next 12 months. Out of the 33 analysts covering the stock, 14 have a “strong buy” rating, one has a “moderate buy” rating, and 18 have a “hold” rating.
FTNT is valued at 31 times forward 2024 projected earnings. Analysts predict earnings growth of 8.3% in 2024. Fortinet's expected growth rates do not justify its high valuation.
Which Stock Is the Better Buy?
By 2027, the cybersecurity market could grow at a compounded annual growth rate of 9% to be worth $266 billion. Ultimately, both Fortinet and CrowdStrike are reputable cybersecurity companies capable of capitalizing on this growth.
However, Wall Street expects CrowdStrike to outperform Fortinet in terms of revenue and profit growth in the coming years. Furthermore, CrowdStrike's strong fundamentals, resilient balance sheet, and outstanding long-term AI-driven prospects justify its high valuation.
Research firm Canalys also recognizes CrowdStrike as the global leader in endpoint security sales, holding an 18.5% market share in the second quarter of 2023.
Therefore, solely based on their performances this year and expected growth prospects, CrowdStrike appears to be a better long-term play. Although CrowdStrike has outperformed its average target price for now, I believe there is more upside to this high-growth stock.
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.
