Wed. Feb 28th, 2024

The next week’s earnings reports will cover cybersecurity stocks with Check Point Software Technologies (CHKP), Fortinet (FTNT) and Cloudflare (NET). Highest rated cybersecurity stocks — Palo Alto Networks (PANW), Zscaler (ZS) and CrowdStrike Holdings (CRWD) — won’t report until late November/early December.




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The IBD Computer-Software Security group ranks a healthy No. 12 out of 197 groups tracked. Deutsche Bank and Morgan Stanley in recent reports noted that cybersecurity stocks have outperformed software growth stocks the last three months amid volatility in the tech sector.

Computer security also remains a top priority as companies set information technology budgets for next year, analysts say.

Cybersecurity Stocks: SASE Market

“(The) cybersecurity spending environment appears to be stable-to-improving relative to the past six months, with more optimism regarding steady improvement toward the end of the year,” William Blair analyst Jonathan Ho said in a report.

Earnings for CHKP stock are due Oct. 30. Fortinet and Cloudflare report on Nov. 2. Check Point and Fortinet garner most revenue from network “firewall” appliances, a market with slowing growth.

But they’re expanding into growth markets, such as Secure Access Service Edge, or SASE. These security tools support remote workers and branch offices.

Zscaler and Palo Alto Networks also sell SASE products.

Hackers Hit MGM, Caesars, Clorox

“SASE demand remains robust, driven by more organizations adopting zero-trust approaches and growing numbers of enterprise applications,” said BMO Capital Markets analyst Keith Bachman in a recent report.

Casino operators MGM Resorts (MGM) and Caesars Entertainment (CZR) as well as Clorox (CLX) recently reported computer hacking incidents. MGM estimated the cost of its data breach at $100 million.

In 2024, new federal compliance regulations forcing companies to disclose data breaches will take effect. That should be a plus for cybersecurity stocks, analysts say.

“While recent high-profile breaches and the upcoming implementation of the new SEC security breach disclosure requirements likely support a solid Q4 budget flush, we expect prudent guidance from management teams given macro uncertainty, likely limiting positive estimate revisions,” said KeyBanc Capital Markets analyst Eric Heath in a report.

Ransomware Attacks Surge In 2023

In addition, ransomware attacks have picked up again in 2023 after slowing the past couple of years. For example, research firm Chainalysis recently said it has recorded nearly $500 million in ransomware payments through the end of September, a nearly 50% increase over the same period a year earlier.

In ransomware attacks, hackers seize control of an organization’s computer system and data by installing malware. Further, they lock up a victim’s computers with data-encrypting software.

Meanwhile, Needham initiated coverage of some cybersecurity stocks on Oct. 25. Needham analyst Matt Dezort rates Palo Alto Networks, which competes in the network firewall market versus Fortinet and Check Point, a buy.

“Primarily by way of acquisition, Palo Alto Networks has evolved into a diverse platform offering abundant growth opportunities outside firewall in modern security arenas like SASE, cloud, XDR and security operations,” he said in a report.

Follow Reinhardt Krause on X, formerly called Twitter,   @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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