Rapid digitization, cloud migration, geopolitical tensions, and increased focus on artificial intelligence (AI) are driving robust demand for cybersecurity solutions. However, cybersecurity companies are under pressure due to increased competition and cautious corporate spending amidst macro challenges. With these factors in mind, we placed Zscaler using TipRanks' stock comparison tool (NASDAQ:ZS), Fortinet (NASDAQ:FTNT), Palo Alto (NASDAQ:PANW) to choose the cybersecurity stocks that can bring you the best returns, according to Wall Street analysts.
Zscaler (NASDAQ:ZS)
Despite reporting better-than-expected second-quarter results and guidance, Zscaler stock is under pressure. The company's calculated bill increased 27% year over year to his $627.6 million in the second quarter of fiscal 2024.
In addition, Zscaler added 112 customers with annual recurring revenue (ARR) of $100,000, bringing the total number to 2,820. Trailing 12-month dollar net retention rate was 117%.
However, investors were disappointed by the slowdown in sales growth. Additionally, Palo Alto's comments on easing customer spending and adapting promotional pricing strategies influenced sentiment towards cybersecurity stocks, particularly those with high valuations.
Is Zscaler a buy, sell or hold?
Jefferies analyst Joseph Gallo recently reiterated his buy rating on Zscaler stock, with a price target of $275. The analyst noted that ZS stock has lagged several peers on a year-to-date basis due to certain concerns, such as competitive pressures in secure access service edge (SASE). That said, Gallo believes ZS stock will outperform for the rest of the year, given that large market opportunities and corporate/federal government exposure are expected to drive upside in FY24 results. I think it is possible.
Investors are concerned about increased competition in the SASE space with the recent entry of several companies, including Microsoft (NASDAQ:MSFT), Fortinet, Cloudflare (New York Stock Exchange:Net), and Check Point software (NASDAQ:CHKP). Although Cloudflare and Fortinet recently announced eight-figure deals on SASE, analysts continue to believe the market is in its early stages and Zscaler remains in “pole position.”
Gallo estimates that Zscaler's total addressable market (TAM) will be $60 billion in 2023 and grow at a compound annual growth rate (CAGR) of 12% to reach $105 billion in 2028.
Zscaler stock has a consensus rating of Strong Buy, with 25 buys and 5 holds. ZS's average price target of $261.68 implies an upside potential of nearly 48%. Zscaler stock has fallen 20% since the beginning of the year.
Fortinet (NASDAQ:FTNT)
Earlier this month, Fortinet reported higher-than-expected first-quarter 2024 revenue and profit. The company's sales increased 7% to $1.35 billion, and adjusted EPS increased 26.5% year over year to $0.43.
However, the stock price plunged following the results, with investors disappointed that first-quarter 2024 billings, a key indicator of future growth, fell 6.4% to $1.41 billion. Also, the midpoint of the company's guidance range for second-quarter billings shows a 1% decline. The company expects headwinds impacting its business to ease in the second half of the year.
Spending restraints by enterprises and competition from companies that provide integrated cybersecurity platforms are impacting Fortinet. To improve its outlook, the company is investing in the rapidly growing integrated SASE and secure operations markets, which together account for one-third of its billings in Q1 2024.
Is Fortinet a buy or a sell?
On May 3, Morgan Stanley analyst Hamza Foderwala lowered his price target for Fortinet stock from $81 to $73, but gave the stock a “buy” rating following the first quarter results. repeated. Although the pace of recovery has been slower than expected so far, Foderwala expects the first quarter to be a trough and growth trends to improve in the second half.
Fortinet stock has a Moderate Buy consensus rating, based on 9 Buys, 17 Holds, and 1 Sell rating. FTNT's average price target of $72 means it has nearly 20% upside potential. The stock has risen just 3% so far this year.
Palo Alto Networks (NASDAQ:PANW)
Palo Alto stock took a big hit when the company lowered its full-year outlook in February, raising concerns about a slowdown in sales growth. The company attributed the revised outlook to a shift in strategy to accelerate “platformization and integration” and support AI leadership.
Importantly, Palo Alto is focused on serving customers' needs to obtain all or most of their cybersecurity solutions from a single vendor, rather than working with multiple security solution providers. The company is optimistic that this “platforming” strategy will help it achieve its goal of generating $15 billion in revenue from next-generation security products by fiscal 2030.
Investors are also concerned about weakness in the company's U.S. federal government business, which the company expects to continue in its fiscal third and fourth quarters.
Palo Alto is scheduled to announce its financial results for the third quarter of fiscal year 2024 on May 20th. Analysts expect the company's EPS to rise about 20% to $1.25 and revenue to rise more than 14% to $1.97 billion.
What is the target price for PANW?
Evercore analyst Peter Levin lowered his price target on Palo Alto stock to $385 from $405 on Monday, maintaining a buy rating. However, the analyst added the stock to his list of “tactical underperformers” ahead of the company's fiscal third-quarter earnings release.
In a quarterly survey of 15 leading partners, analysts said the ecosystem maintains a positive long-term outlook for PANW (optimistic outlook for 12-month revenue growth acceleration), but the pipeline is weaker than the previous quarter. He explained that this showed that there was some slowing in the line's momentum. .
Additionally, Palo Alto's “platforming” strategy received mixed reviews. As such, Levine is cautious ahead of the results and believes an addition to the “tactical underperformer” list is warranted. However, his long-term view remains that Palo Alto remains a dominant cyber vendor.
Overall, Palo Alto stock has a “Moderate Buy” consensus rating based on 29 buys and 10 holds. PANW's average price target of $333.24 suggests upside potential of 10.5%. PANW stock has rebounded since February's plunge and is up 2.3% since the beginning of the year.
conclusion
Wall Street is extremely bullish on Zscaler, but cautiously optimistic about Fortinet and Palo Alto. They see Zscaler's upside potential as higher than the other two stocks. Given the strong growth in Zscaler's key metrics and the large addressable market, analysts view the stock's decline as a good buying opportunity.
disclosure
