McAfee Corp. (MCFE) and Fortinet, Inc. (FTNT) are two of the largest integrated security and cybersecurity solutions providers. They operate in the United States and internationally. MCFE provides security technologies and cybersecurity solutions that protect against threats across the cloud. FTNT provides web application firewall solutions, anti-spam, anti-malware, and secure email gateway solutions.
The application of advanced cybersecurity solutions has emerged as the primary tactic by enterprises around the globe that are seeking to safeguard data from a variety of potential attacks on online privacy or unauthorized site access. With an increased reliance on digital tools, the risk of cyberattacks, cloud vulnerability and targeted ransomware has been pushing businesses to reassess their security measures now more than ever before. We believe that this imperative should keep driving the demand for privacy and security solutions offered by MCFE and FTNT.
MCFE has gained 50.8% so far this year, while FTNT has returned 35.8% over the same period. In terms of their past month’s performance, FTNT is the clear winner with 14.6% gains versus MCFE’s 6.9% returns. But which of these stocks is a better pick now? Let’s find out.
Last month, MCFE and Panasonic Corporation forged a joint venture to build a Vehicle Security Operation Center for the commercialization of vehicle security monitoring services. Since the risk of cyber-attacks against automobiles is increasing annually, the operation center is expected to contribute significantly to the development of secure mobility.
Also last month, MCFE agreed with Symphony Technology Group to sell MCFE’s Enterprise business in an all-cash transaction for $4 billion. This move should enable the company to focus on its consumer business and drive its business strategy to establish itself as a leader in security for consumers.
In March, FTNT introduced a book, titled Cyber Safe, to increase cyber awareness amongst children aged 7 – 12 years old. The cybersecurity awareness book is in response to the rapid shift currently to online learning activities and was written to help to protect children and their parents against cyber-harms.
Also last month, the company entered a strategic collaboration with Linksys, a leading wireless networking products company, to secure and simplify remote connectivity and enable organizations to have a fast and reliable user experience.
Recent Financial Results
During the fourth quarter, ended December 26, MCFE’s net revenue increased 13.9% year-over-year to $777 million. Its consumer revenue was $426 million, reflecting 23% growth year-over-year. The company’s gross profit was $521 million, representing a 10.6% increase from its year-ago value. Its enterprise revenue grew 5% from the prior-year quarter to $351 million over this period.
In the fourth quarter ended December 31, 2020, FTNT reported $748 million in revenues, representing a 21% increase year-over-year. The company’s non-GAAP operating margin was 29.4%, compared to 27.3% in the fourth quarter of 2019. FTNT’s non-GAAP net income was $175.5 million, compared to non-GAAP net income of $135.1 million for the same quarter of 2019.
Past and Expected Financial Performance
MCFE’s revenue has increased at a CAGR of 11.9% over the past three years. In comparison, FTNT’s revenue grew at an annualized rate of 20.2% over this period. Also, MCFE’s EBITDA has increased at a CAGR of 42.7%, over the past three years, while the CAGR of FTNT’s EBITDA rose 50.1% over this period.
The Street expects MCFE’s revenue to rise 4.1% in the current year, and 4.6% next year. A consensus EPS estimate indicates a 12.9% increase in the current year and 16.8% in 2022. In comparison, analysts expect FTNT’s revenue to increase 18% in fiscal 2021 and 15.2% in 2022. Also, the company’s EPS is estimated to increase 11% in the current year and 14% next year.
MCFE’s trailing-12-month revenue is 1.12 times higher than FTNT’s. However, FTNT is more profitable, with a 78% gross profit margin versus MCFE’s 69.9%.
But MCFE’s 29.8% levered free cash flow margin compares favorably with FTNT’s 29%.
In terms of forward non-GAAP PEG, FTNT is currently trading at 3.58x, 167.2% higher than MCFE, which is currently trading at 1.34x. Also, its 12x trailing-12-month EV/Sales is 170.3% higher than MCFE’s 4.44x.
So, MCFE is cheaper than FTNT.
MCFE has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, FTNT has an overall Crating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Value Grade, MCFE has a B, given its lower-than-industry P/E ratio. But FTNT’s Value Grade of D is reflective of its higher-than-industry P/E ratio.
MCFE has a B grade for Sentiment also, which is consistent with analysts’ expectations that its revenue and EPS will increase. FTNT’s C grade for Sentiment reflects its relatively weak EPS growth expectations.
Both MCFE and FTNT have C Momentum grades, which is consistent with their price returns over the past month.
Among the 23 stocks in the D-rated Software – Security industry, MCFE is ranked #1 while FTNT is ranked #10.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both MCFE and FTNT for Quality, Stability, and Growth. Get all MCFE ratings here. Also, click here to see the additional POWR Ratings for FTNT.
With the rising number of online privacy breaches and security threats, the cybersecurity solutions industry has grown exponentially in recent years. This should lead to a significant increase in demand for cybersecurity products offered by MCFE and FTNT. However, MCFE’s increasing digital footprint and strong subscription growth should help it perform better in the near term. MCFE is also relatively undervalued compared to FTNT. So, it is a better bet now.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Software – Security industry.
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FTNT shares were trading at $201.17 per share on Tuesday morning, down $2.73 (-1.34%). Year-to-date, FTNT has gained 35.44%, versus a 11.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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