We Raise FVEs For These Cybersecurity Firms

A host of U.S. companies and government agencies were recently breached in perhaps the most sophisticated cyberattack ever executed. Victims include the U.S. Dept. of Defense, State, Homeland Security, and Treasury, and private companies like Microsoft. Hackers were able to inject malicious code and compromise IT management software provided by SolarWinds between March and June 2020, creating a backdoor for malicious actors to spy on networks and pilfer data. While it will take time to discover the damages enterprises and governments incurred by the recently discovered widespread Sunburst breach, we believe it will certainly benefit vendors within our security coverage. First, we expect incident response and remediation services to be in high demand as entities grapple with the immediate consequences of the breach. Next, we believe there will be a high attach rate of cybersecurity products with those services. Last, we believe that governments and businesses will hasten their adoption of zero-trust security architectures to provide enhanced protection. In turn, we expect these trends to boost growth for companies with leading incident response teams that can upsell products and provide a tailwind for firms providing zero-trust security offerings as customers become more aware of their threat exposure. With an expectation for higher near-term growth that stays elevated over our forecast period, we are raising our fair value estimates for narrow-moat Check Point Software CHKP to $132 from $127, narrow-moat CrowdStrike CRWD to $162 from $140, narrow-moat Fortinet FTNT to $127 from $117, narrow-moat Okta OKTA to $232 from $210, narrow-moat Palo Alto Networks PANW to $345 from $305, narrow-moat Zscaler ZS to $140 from $127, and no-moat FireEye FEYE to $16 from $14. We expect the moaty companies to showcase durable customer switching costs over our forecast period, and we believe that FireEye will have heighted demand due to its incident response prowess.

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