MKM Partners Initiates Coverage of Cybersecurity Stocks at Buy By

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By Sam Boughedda

An MKM Partners analyst initiated coverage of cybersecurity stocks Palo Alto Networks Inc (NASDAQ:), Zscaler (NASDAQ:), Fortinet (NASDAQ:), CrowdStrike Holdings Inc.(NASDAQ:), and CyberArk Software (NASDAQ:) in separate notes on Friday.

She started shares of Palo Alto Networks with a Buy rating and a $250 price target, stating it is a diversified cybersecurity company. “The company has gradually transitioned to a software-focused model, with over 75% of total revenue derived from subscriptions and services,” said the analyst. “At the helm since May 2018, CEO Nikesh Arora has been instrumental in transitioning Palo Alto Networks to a SaaS-based model focused on next-generation cybersecurity.”

In addition, Zscaler was initiated with a Buy rating and a $225 price target. “We believe Zscaler is an attractive long-term growth opportunity based on enterprise organizations seeking (1) a superior platform for Zero Trust to consolidate functionality to reduce the attack surface, equipment sprawl, and IT costs, and (2) to provide seamless protection regardless of location, geography, office, home, and/or public WiFi,” explained the analyst. “A growing end market combined with industry-leading products and innovation should allow Zscaler to sustain 30%+ top-line growth plus operating margin and free cash flow expansion well above peers.”

Shares of Fortinet were initiated with a Buy rating and a $70 price target. The analyst stated their positive thesis is based on favorable market trends set in the current challenging macro backdrop that are tailor fit for a Fortinet solution set. The analyst added that the company has several compelling sustainable competitive advantages, including leveraging its core platform (FortiGate) and operating system (ForitOS), its large product portfolio, and its path to reach $10bn in billings by 2025.

CrowdStrike Holdings was started with a Buy rating and a $240 price target, with MKM stating the company has one of the most comprehensive cloud-native platforms in the industry. “The cloud-native architecture allowed the company to expand its capabilities beyond Endpoint Security with 22 modules (up from 10 at the time of its IPO in 2019) that address a $71bn market opportunity in FY24,” wrote the analyst. “The company plans to reach $5bn in ARR by FY26 (this is up from its prior $3bn target it provided last year). We believe the company is in a league of its own given its ability to balance investment and sustained topline growth of over 55% for the past 10 quarters.”

Finally, CyberArk Software was initiated with a Buy rating and a $190 price target. “We believe the company’s transition to a subscription model came in ahead of plan, and that Annual Recurring Revenue (ARR) growth is above the company’s overall growth rate, which should ultimately enable future total revenue growth to accelerate. The rapid rise in mobile workers, hybrid and multi-cloud adoption, and digitalization of the enterprise are driving higher enterprise priority for Identity Security, including CyberArk’s market-leading privileged access management (PAM),” the analyst stated.

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