Security Software Is Booming, Goldman Sachs Says. Why It Downgraded Crowdstrike and Check Point.
Essex said Check Point’s rivals in the firewall business are growing faster than it is.
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Stock in CrowdStrike Holdings and Check Point Software Technologies headed lower after Goldman Sachs security-software analyst Brian Essex offered an upbeat view of the sector but cut his ratings on the two firms’ shares.
“Now is the time to own security software,” Essex said in a research note. Financial results for the second quarter provided “evidence that digital transformation, expansion of attack surfaces, an elevated threat environment, and widely publicized security incidents continue to drive accelerated demand for next gen security,” he said. The group is seeing “one of the most substantial firewall-related spending cycles we’ve seen in years,” Essex said.
Essex said his favorite names in the group include SentinelOne (S), which focuses on endpoint security; Ping Identity (PING), in the identity-management sector; Palo Alto Networks (PANW), in network security; AvePoint (AVPT), in data security; and Tenable (TENB), in vulnerability assessment and management. He also has Buy ratings on Okta (OKTA), Rapid7 (RPD), SailPoint (SAIL), and Verint (VRNT).
On Check Point (CHKP), though, he reduced his rating to Sell from Neutral, lowering his target for the stock price to $121, from $133. Check Point shares were down 1.9% at $118.88 in morning trading.
Essex noted that the company’s rivals in the firewall segment are growing faster than it is. “While firewall demand remains robust as seen by Check Point’s peers’ ability to accelerate into the high twenty percent to low thirty percent range, on the contrary we are seeing Checkpoint growth remain in low single digit territory,” he wrote.
CrowdStrike (CRWD), Essex said, was one of the few players in the group to show year-over-year deceleration in the latest quarter. He said that while he expects CrowdStrike to perform well and has an opportunity to gain market share, he downgraded the stock to Neutral from Buy because that stronger performance appears to be already reflected in the stock price.
Essex kept his $305 price target on the stock. The shares were down 3.5% at $252.74.
Essex also has Sell ratings on Secureworks (SCWX) and Qualys (QLYS). “We are cautious on platforms that are losing share, have execution challenges, and/or where companies have under invested in emerging technology and platform expansion,” he said.
Essex says that Check Point, Secureworks and Qualys all fall into that category. “These companies are showing similar trends of revenue deceleration, and we expect incremental margin compression ahead as they spend to catch up with peers in their respective security segments,” he said.
Write to Eric J. Savitz at [email protected]
