Cybersecurity Software May Be Red Hot in 2021: 3 Top Stocks to Buy Now

Technology was a big 2020 winner, and many of the top stocks had an outstanding year. One thing that continues to critical for companies and governments is protecting data and keeping malicious hackers and malware from invading information technology systems and infrastructure.

In a recent report, the Security Software team at Raymond James resumes coverage on five top companies in the industry. Here we focus on the three that are rated Strong Buy and Outperform. The analysts note that enterprise information technology spending is becoming more strategic and less cyclical. IT spending has represented more than half of total equipment capital spending for three consecutive years, and in a display of durability, it has accelerated as a percentage of spending into the pandemic.

The analysts said this software spending and growth:

Security is small, but increasingly important to Enterprise IT Spending. While Security spend has experienced rapid growth, it is still just ~4% of total IT Spending. However, we note that customer verticals such as Financial Services spend nearly 2x the broader global market as a percentage of budget. In other words, there are current tangible examples that suggest broader market adoption of these models could force a doubling of Security spend as a percentage of IT budgets over time.

While the Raymond James analysts are very positive on these three top companies, it remains important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Fortinet

The shares have backed up nicely from the highs of last year and are offering a very attractive entry point. Fortinet Inc. (NASDAQ: FTNT) secures the largest enterprise, service provider and government organizations around the world. It empowers its customers with complete visibility and control across the expanding attack surface and the power to take on ever-increasing performance requirements today and into the future.

Fortinet’s Security Fabric platform can address the most critical security challenges and protect data across the entire digital infrastructure, whether in networked, application, multi-cloud or edge environments. Fortinet ranks number one in the most security appliances shipped worldwide, and more than 465,000 customers trust Fortinet to protect their businesses. Both a technology company and a learning organization, the Fortinet Network Security Expert Training Institute has one of the largest and broadest cybersecurity training programs in the industry.

Raymond James said this about the company:

We think penetration of compute-intensive functions like SD-WAN provides significant runway (currently 12% of billings), and the technology gap is significant, which should lead to sustained organic growth. Recent transactions in SD-WAN serve as a near-term catalyst given tech leader Silver Peak is in the process of being acquired by HP Enterprise.

On profitability: We note that this growth should come alongside continued strong margin performance as Services revenue increases, and go-to market advantages remain as Fortinet continues to command significant channel mindshare based on our checks. This combination should continue to separate Fortinet from the pack, and investors will begin to view this through the lens of a “Rule of 40” software company. These stocks generally trade at >20x revenue and >40x EBITDA and we see valuation closing this gap over time.

The shares are rated Outperform and come with a $170 price objective. The consensus target is $139.50, Fortinet stock ended Wednesday at $138.11 per share.

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