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Heading into the June earnings periods, two Wall Street analysts on Monday laid out a bullish case for security software stocks — in particular fast growers with cloud-based offerings.
In a research note, Deutsche Bank analyst Patrick Colville focused on the growing opportunity in segment known as “secure access service edge,” or SASE (apparently pronounced “sassy”), which rolls up a variety of security software functions into a single cloud-based service. The idea boils down to cloud-based security software.
Colville says that SASE providers like
(ticker: ZS),
(PANW), and
(FTNT) “had a proofpoint” during the pandemic in 2020, as they “successfully enabled companies to operate during times of disruption, provide secure and performant application access regardless of user location.”
He sees a $10 billion opportunity for the group to replace existing web gateways, virtual private networks, edge routers, and firewalls. Colville thinks that for some customers the shift to a SASE model will result in consolidation of security spending on a single vendor — and he says
and
are the best positioned competitors. He sees 57% growth in SASE spending in 2021, with 40% compounded growth through 2024.
“We think the Street has been slow to realize the market opportunity from this technology shift,” he says.
Colville repeated his Buy rating on Zscaler, taking his target price to $282, from $215, while likewise reiterating his Buy on Palo Alto Networks, with a new target of $490, up from $410. He maintains his Hold rating on Fortinet, while boosting his target to $242, from $190; for
he maintains a Hold rating, while trimming his target to $122, from $125.
Mizuho analyst Greg Moskowitz, meanwhile, wrote in a research note Monday that a new proprietary survey of about 100 U.S. security software buyers found that they have “a clearly favorable view of the security market at this time.” He said that 83% of buyers characterized second-quarter spending as “better than usual,” up from 54% a year earlier. He added that 32% of respondents said they spend “much more than usual” this quarter. And none –none— spend less than usual.
He adds that 89% of respondents expect their organization to spend more on security in 2021 as a result of the recent high-profile cyberattacks, with 50% expecting a much higher increase this year.
Moskowitz finds the data “most bullish” for Buy-rated Zscaler and
(CRWD), and Neutral-rated
(NET) and
(OKTA). For Zscaler, he boosts his target price to $250 from $225; for CrowdStrike he moves his target to $295, from $255. He also lifted his targets on Cloudflare, to $96 from $77, and for Okta to $275, from $255.
In Monday trading, Zscaler and Fortinet were up about 1%, while Okta and Cloudflare were off 1%, and the rest of the group is little changed.
Write to Eric J. Savitz at eric.savitz@barrons.com
