Tailwinds put Security in the spotlight; Buy PANW (CL), FEYE; initiate on PFPT (Buy), FTNT
* Why we are Bullish on Security stocks
We assume coverage of Security Software with an
Attractive coverage view, given several tailwinds
that we believe put Security in the spotlight.
These include: (1) an evolving cyber threat
landscape producing larger and more costly data
breaches; as a result of this (and a potential
firewall refresh), enterprises are reviewing, and in
many cases, increasing Security spend to avoid
significant financial/reputational damage in the
event of a breach, (2) a number of factors that are
supportive of increased M&A and capital
allocation for our stocks looking forward.
* Breaches, refreshes support shift to next-gen
We view recent high-profile data breaches (e.g.,
TGT) and an expected firewall refresh as positive
catalysts for our stocks, with a preference for
next-gen/APT-centric providers. Our proprietary
IT surveys support our bullish call, highlighting:
(1) Security spending is accelerating at its highest
rates since 2010, (2) a firewall refresh appears
more likely within the next 12 months, and (3)
new budget is being created to fight APTs, with a
high preference for solutions from new vendors.
* Breaches, refreshes support shift to next-gen
We view recent high-profile data breaches (e.g.,
TGT) and an expected firewall refresh as positive
catalysts for our stocks, with a preference for
next-gen/APT-centric providers. Our proprietary
IT surveys support our bullish call, highlighting:
(1) Security spending is accelerating at its highest
rates since 2010, (2) a firewall refresh appears
more likely within the next 12 months, and (3)
new budget is being created to fight APTs, with a
high preference for solutions from new vendors.
* Stock views: Buy PANW (CL), PFPT, FEYE
Palo Alto Networks (PANW, CL-Buy) is our top
pick, offering disruptive long-term growth and
accelerating profitability that should exceed street
forecasts. We also initiate coverage of Proofpoint
(PFPT) at Buy, given our above-consensus view on
near-term growth/FCF trends, and potential upside via
M&A. We upgrade FireEye (FEYE) to Buy, as
proprietary survey data indicates increased budget
(with new vendors) to counter APTs, a more positive
view on FCF, and potential M&A tailwinds over the
long-term. We also initiate coverage of Fortinet
(FTNT) with a Neutral rating.