The popularity of hybrid work structures and digitization trends across almost every sector have fostered increasing use of cloud-based and digital solutions, bringing greater risks of cyber threats. According to the Identity Theft Resource Center (ITRC), the frequency of data breaches so far this year has already exceeded the 2020 total.
On the bright side, people are becoming increasingly cognizant of the need for cybersecurity. Governments and private organizations worldwide are investing significantly to enhance their security infrastructure and safeguard against potential thefts. Driven by the increasing demand, the global cybersecurity industry is expected to increase at a 10.9% CAGR from 2021 – 2028. Earlier this year, President Biden issued an executive order seeking to strengthen national cybersecurity and protect government networks following the ransomware attacks on the Colonial Pipeline. Federal Agencies reminded corporates and businesses of their obligation to keep up with the industry standards for cybersecurity after the Federal Trade Commission (FTC) upgraded its cybersecurity enforcement actions.
Given the growing cybersecurity market, we think the shares of solutions providers in this space, NortonLifeLock Inc. (NLOK), McAfee Corp. (MCFE), and Redwares Ltd. (RDWR), could be solid bets now. These stocks are rated ‘Strong Buy’ or ‘Buy’ in our proprietary POWR Ratings system.
NortonLifeLock Inc. (NLOK)
NLOK in Mountain View, Calif., is a worldwide provider of cybersecurity solutions. The company’s offerings include Norton 360, a subscription service that protects devices against online threats, and the Norton Secure VPN, which provides online privacy through an encrypted data tunnel.
On October 5, NLOK unveiled its new privacy offering called Norton™ AntiTrack, an app and web extension that provides users with online privacy. The latest offering might expand NLOK’s privacy portfolio beyond traditional VPN.
In August, the company reached an agreement regarding merger with digital security and privacy products provider, Avast. Regarding the impending merger, Vincent Pilette, Chief Executive Officer of NortonLifeLock, said, “With this combination, we can strengthen our Cyber Safety platform and make it available to more than 500 million users. We will also have the ability to accelerate innovation further to transform Cyber Safety.”
For its first fiscal quarter, ended July 2, NLOK’s non-GAAP revenues increased 12.5% year-over-year to $691 million. Its non-GAAP operating income rose 22.5% from the prior-year quarter to $354 million, while its non-GAAP net income improved 31.9% from the same period last year to $248 million. Its non-GAAP net income per share came in at $0.42, up 35.5% from its year-ago value.
A $ 1.71 consensus EPS estimate for the current year (fiscal 2022) indicates an 18.8% year-over-year increase. Likewise, the $2.80 billion consensus revenue estimate for the current year reflects a 9.8% rise from the prior year. Moreover, NLOK has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 28% in price over the past year and 28.3% year-to-date to close Friday’s trading session at $26.67.
NLOK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
NLOK has a Quality grade of A, and a Value grade of B. In the 27-stock Software – Security industry, it is ranked #4. To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for NLOK, click here.
McAfee Corp. (MCFE)
MCFE is an integrated security, privacy, and trust solutions global provider. The Santa Clara, Calif., company’s anti-malware software, comprehensive internet security, and online privacy enable home users to protect their devices from various online threats.
On September 21, MCFE launched a new online protection service to provide personalized and unified experiences focused on identity and privacy. The service should be in wide demand given rising cyber scams worldwide.
In August, MCFE partnered with a dynamic disruptive technologists’ team, True Network Solutions, Inc., to provide Walmart Inc. (WMT) customers with several technical service offerings. The collaboration should enable MCFE to expand its customer base for its easy-to-use security solutions.
MCFE’s net revenues increased 21.9% year-over-year to $467 million in its second fiscal quarter, ended June 26. Its gross profit rose 28.6% from the prior-year quarter to $351 million. Its adjusted EBITDA improved 38% from the same period last year to $218 million, while its adjusted net income stood at $125 million, registering a 98.4% year-over-year rise.
The Street’s $1.23 EPS estimate for the next year (fiscal 2022) reflects a 23% improvement from the current year. Likewise, the Street’s $2.07 billion revenue estimate for the coming year reflects a 12% year-over-year increase.
MCFE’s stock has gained 21.1% over the past year to close Friday’s trading session at $22.76. The stock has gained 36.4% year-to-date.
It’s no surprise that MCFE has an overall B rating which translates to Buy in our POWR Rating system. The stock has a B grade for Value and Quality. It is ranked #3 in the Software – Security industry.
Click here to see the additional POWR Ratings for MCFE (Growth, Momentum, Stability, and Sentiment).
adware Ltd. (RDWR)
RDWR markets cyber security and application delivery solutions for physical, virtual, cloud and software applications. The company has an array of offerings, including DefensePro, a real-time network attack mitigation device, the AppWall web application firewall, and the cyber-command application DefenseFlow. RDWR is based in Tel Aviv, Israel.
On October 21, RDWR launched its new encrypted protection capabilities to provide unmatched protection against SSL DDoS attacks. The launch reflects an advance beyond the company’s existing operational capabilities. Also, in October, RDWR unveiled enhancements in its protection capabilities with its Quantile DoS protection offering.
On September 30, RDWR announced that it had been chosen by an Asia-Pacific stock exchange to protect its online trading platform. The company’s Vice-President of international sales, Yoav Gazelle, said, “redwares has earned the trust of some of the world’s largest financial services organizations. They’ve come to rely on us not only for our deep market expertise but also for the application security they need to maintain a high level of resiliency and protection.”
For its second fiscal quarter, ended June 30, RDWR’s revenues increased 19.2% year-over-year to $69.67 million. Its non-GAAP gross profit stood at $57.35 million, up 18.5% from the prior-year quarter. Its non-GAAP net income and non-GAAP net EPS came in at $8.89 million and $0.19, respectively, representing improvements of 48.4% and 46.2%, respectively, from the same period last year.
Analysts expect its EPS to increase 18.7% year-over-year to $0.89 in the next year (fiscal 2022). Likewise, the $307.75 million consensus revenue estimate for the coming year indicates a 9.7% rise from the current year.
The stock has gained 48.5% in price over the past year and 28.5% year-to-date to close Friday’s trading session at $35.65.
RDWR’s POWR Ratings reflect this positive outlook. The stock has an overall A rating which equates to Strong Buy in our proprietary rating system. RDWR has a Growth and Quality grade of A. It is ranked #1 in the Software – Security industry.
In addition to the POWR Rating grades we’ve stated above, one can see RDWR ratings for Value, Momentum, Stability, and Sentiment here.
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NLOK shares were trading at $26.75 per share on Monday afternoon, up $0.08 (+0.30%). Year-to-date, NLOK has gained 30.71%, versus a 23.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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