Security software stocks were getting a boost on Tuesday from Goldman Sachs analyst Brian Essex, who picked up coverage of the sector with a bullish slant.
“We believe IT security offers attractive levels of exposure to growth technology, and that profitable companies with this exposure could outperform the market through the mature stages of an economic expansion cycle due to the durability of underlying spending,” he wrote in a lengthy report. “Durability in spending is supported by digital transformation initiatives across all verticals.”
Essex said his conversations with executives found that information-technology security spending “is well positioned for healthy growth and is among the least likely budget items to be trimmed as attack surface exposure continues to grow.” He also noted that security vendors are shifting their businesses to be more predictable, as they adopt subscription models. And he said a wave of consolidation in the sector lies ahead, offering valuation support for some of the narrower vendors that might make acquisition bait for larger players.
Essex initiated coverage of seven stocks. He set three Buy ratings: Palo Alto Networks (ticker: PANW), Fortinet (FTNT) and Verint Systems (VRNT). He rates Check Point Software (CHKP), FireEye (FEYE) and Zscaler (ZS) as Neutral. He started SecureWorks (SCWX) with a Sell rating.
Here are brief comments on each company from his report:
All three of the Buy rated stocks were trading higher, with Fortinet the standout, up 3.3% to $99.09 near midday. The Neutral-rated names were also higher, with Zacaler up 1.2%, to $44.58. SecureWorks shares were down 2.8%, to $11.39. The S&P 500 was up 0.3%.
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