Zacks Industry Outlook Highlights: Palo Alto Networks, Qualys and Radware
Palo Alto Networks, Qualys and Radware are highlighted in this industry outlook article.
For Immediate Release
The Zacks Security industry is benefiting from solid demand for cybersecurity offerings as well as the heightening need for secure networks and cloud-based applications amid the pandemic-induced remote-working and online learning wave. Companies in this space are benefiting from the rising demand for IT security solutions owing to the surging number of data breaches. Increasing requirements for privileged access security on the back of digital transformation and cloud migration strategies are also fueling demand for cybersecurity solutions.
Industry participants like Palo Alto Networks, Qualys and Radware are gaining from the aforementioned trends. However, the emergence of the Omicron variant strain and the spike in infection rates across several parts of the world, resulting in stringent lockdowns, might affect recovery in IT spending. Also, lingering impacts of the coronavirus pandemic-led business volatility are a concern.
The Zacks Security industry comprises companies offering on-premise and cloud-based security solutions. These can be used for identity access management, infrastructure protection, integrated risk management, malware analysis and Internet traffic management, to name a few. Industry participants offer different types of security solutions, most of which can be used interchangeably.
These solutions can be roughly categorized into three types — Computer Security, Cybersecurity and Information Security. Computer Security solutions provide protection from vulnerabilities in both the software and hardware of a computer system. Cybersecurity includes sections like web security, network security, application security, container security and information security. Information Security is concerned with any form of data-security issue, be it physical or digital data.
3 Trends Influencing the Future of the Security Industry
Rising Cyber Threats Boost Demand for IT Security:Frequent cyberattacks are spurring demand for security solutions. This worrisome trend has not only affected certain companies but also threatened the national security of some countries. Notably, the prevailing global health crisis has given rise to newer forms of hacking and cybercrimes, which are difficult for firms and individuals to grapple with.
Firms operating in the security industry are working hard to address these concerns. Hence, these companies are positioned to benefit as protection against spear phishing, credential-based attack, account takeover and ransomware attacks, among others has become the need of the hour.
Cloud Migration Hurting On-Premise Security Demand:Traditional spending on on-premise information security hardware and software is weakening amid the COVID-19 pandemic-induced remote-working wave and accelerated cloud migrations for digital transformation.
Evolving COVID-19 Situation Might Hurt Tech Spending:According to the latest report from Gartner, enterprises are likely to spend more on technology as they realize that sound technological infrastructure is the key to positive business outcomes. Therefore, the independent research firm estimates worldwide IT spending to increase 5.5% year over year and reach $4.5 trillion in 2022.
However, with the emergence of the more contagious coronavirus variant — Omicron — across several parts of the world, including the United States, Europe and India, there has been a massive spike in infection rates, leading to stringent lockdowns. This could affect IT spending across small- and medium-sized businesses, globally, as organizations may push back their investments in big and expensive technology products due to global economic slowdown concerns. The uncertainty in business visibility could dent the industry’s performance in the near term.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Security industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #234, which places it among the bottom 8% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are not optimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2022 has moved down to earnings of 1.06 from earnings of $3.05 as of January 2021.
Despite the gloomy industry outlook, a few stocks are worth watching in the market. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector and S&P 500
The Zacks Security industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has gained 51% during this period compared with the S&P 500’s 28.9% rally and the broader sector’s 27.1% appreciation.
Industry's Current Valuation
On the basis of the trailing price-to-sales ratio (P/S), which is a commonly-used multiple for valuing the Security stocks, the industry is currently trading at 13.54, higher than the S&P 500’s 5.19 and the sector’s 5.58.
Over the last five years, the industry has traded as high as 14.34X, as low as 5.64X and recorded a median of 8.18X.
3 Stocks to Watch Out For
Palo Alto Networks: The company offers network security solutions to enterprises, service providers and government entities worldwide. Palo Alto Networks has been benefiting from continuous deal wins and increasing adoption of the company’s next-generation security platforms, attributable to the rise in the remote work environment and need for stronger security.
Strong demand for form factor hardware products, particularly the recently launched machine learning (ML)-powered models that ensure zero-trust network security for organizations, is expected to have contributed to Palo Alto Networks’ quarterly performance.
Growing traction in Strata, Prisma and Cortex offerings are acting as a tailwind. The acquisition of Bridgecrew earlier this year has enhanced the capabilities of Prisma and Cortex product capabilities, thereby helping Palo Alto Networks in attracting more customers.
Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for fiscal Palo Alto Networks’ 2022 earnings has been unchanged at $7.24 per share over the past 30 days. Shares of PANW have increased 51.8% over the past year.
Qualys: This Zacks Rank #3 company offers cloud security and compliance solutions that enable organizations to identify security risks to their information technology infrastructures, thus helping protect their IT systems and applications from cyber-attacks.
Qualys is gaining from the surging demand for security and networking products amid the coronavirus crisis as a massive global workforce is working remotely. Accelerated digital transformations by organizations are also fueling demand for the company’s cloud-based security solutions.
The Zacks Consensus Estimate for 2022 earnings has moved 5.6% north to $3.41 per share over the past 90 days. Qualys’ shares have risen 11.8% in the past year.
Radware: The company develops, manufactures and markets products that manage and direct Internet traffic among network resources to enable continuous access to websites and other services, applications and content based on Internet protocol.
Radware is gaining traction from stellar software growth, backed by a solid uptick in public cloud and security offerings. Also, it is benefiting from the growing demand for consistent application security across multi-cloud environments, which is aiding revenue growth.
This Zacks Rank #3 stock has appreciated 37.7% in the past year. The consensus mark for the ongoing year’s earnings has been revised 4 cents upward to 99 per share in the past 60 days.
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Radware Ltd. (RDWR): Free Stock Analysis Report
Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report
Qualys, Inc. (QLYS): Free Stock Analysis Report
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