Morgan Stanley analyst Hamza Fodderwala released a note on the cybersecurity industry Friday, highlighting his outlook on the industry as well as his top cybersecurity stock picks.
Cybersecurity Industry Overview: Cyberattacks such as the ones on the Colonial Pipeline, JBS and Kaseya have dominated headlines, exposing vulnerabilities that corporations face following the rapid shift to digitalization over the past year, said Fodderwala.
The Morgan Stanley analyst surveyed 60 U.S.-based chief security officers who suggested a heavy uptick in corporate cybersecurity spending into the second half of 2021, the analyst said.
Ninety-two percent of CSOs surveyed indicated the “heightened cyber threat environment” is a primary reason for 2021’s “accelerating security spend,” he said.
Specifically, identity and access management and endpoint security remain the “top spending priorities in 2021,” according to the survey.
The analyst named three companies to own with the “most favorable risk/reward” profile going into the second half of 2021:
- CyberArk Software, Ltd. (NASDAQ:CYBR)
- Palo Alto Networks, Inc. (NYSE:PANW)
- SailPoint Technologies, Inc. (NYSE:SAIL)
The CyberArk Takeaways: CyberArk is the market leader in the growing privileged access management space, said Fodderwala. The PAM space is an “increasingly strategic” market that focuses on differentiating access to data based on user privileges, mitigating threats to a company’s most sensitive data if a hacker were to breach its network, said the analyst.
CyberArk continues to outpace peers as a leading market share gainer, with 30%-plus ARR growth forecasted through 2022 and room for multiple expansion considering, he said.
Morgan Stanley maintained an Overweight rating on CyberArk with a $200 price target.
The Palo Alto Networks Takeaways: The CSO survey highlighted Palo Alto Networks as a market share gainer in network security, SD-WAN, and cloud security gateway, said Fodderwala. The gains across several cybersecurity categories suggest a “broader platform story coming together,” said the analyst.
The company trades at 7x EV/CY22 sales and 22x CY22 FCF, a discount to security peers, he said.
Morgan Stanley maintained an Overweight rating on Palo Alto with a $515 price target.
The SailPoint Takeaways: SailPoint is a “notable share gainer” in the identity management and governance space, said Fodderwala. SailPoint’s revamped go-to-market strategy should cater to growing demand, driving 30%-40% ARR growth over the next couple of years, said the analyst.
The company also trades at more than a 50% discount to several high-profile SaaS security players, he said.
Morgan Stanley maintained an Overweight rating on SailPoint with a $75 price target.
CYBR Price Action: Shares of CyberArk gained 1.91% Friday, closing at $139.61.
PANW Price Action: Shares of Palo Alto Networks gained 0.97%, closing at $390.24.
SAIL Price Action: Shares of SailPoint were up 0.96% at $50.65.