Rapid digitization of business operations necessitates the requirement for smart cybersecurity solutions. The demand for cybersecurity solutions is growing thanks to the rise in cyberattacks, security breaches, and exposure to private and confidential information.
Given the long-term growth prospects of the security industry, it could be wise to buy fundamentally strong and safe stocks Fortinet, Inc. (FTNT), Check Point Software Technologies Ltd. (CHKP), and Trend Micro Incorporated (TMICY).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the security industry is well-positioned for growth.
Business enterprises invest heavily to transform their operations digitally to keep pace with the rapidly changing business environment. Enterprises are migrating to cloud-based systems to operate seamlessly and elevate their functioning, helping them achieve scalability and reduce costs.
However, digitizing business operations has left companies vulnerable to cyberattacks and security breaches. Such risks can put the operations of companies in jeopardy. According to Cybersecurity Ventures, the cost of cybercrime is expected to hit $8 trillion in 2023 and rise to $10.5 trillion by 2025.
Moreover, the deployment of 5G services in various sectors amplifies the need for robust security measures to safeguard data and mitigate cyber threats. This trend is projected to fuel the growth of the network security market in the future.
The Security Software market was valued at $20.69 billion in 2022, and the total security software revenue is projected to reach $51.46 billion by 2029, growing at a CAGR of 13.9%.
Considering these factors, it could be wise to buy the featured stocks. Let’s take a closer look at their fundamentals.
Fortinet, Inc. (FTNT)
FTNT provides cybersecurity and networking solutions worldwide. It offers FortiGate hardware and software licenses that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network acceleration.
On June 7, 2023, FTNT announced that 11 new managed security service providers (MSSPs) adopted Fortinet Secure SD-WAN. These MSSPs include Kyndryl, 11:11 Systems, Claro Empresas, and others, joining a growing list of providers using Fortinet Secure SD-WAN to deliver improved connectivity services while maintaining security.
FTNT’s EVP of Products and CMO John Maddison said, “Fortinet is uniquely equipped to deliver industry-leading secure networking solutions that are integrated across SD-WAN, SASE, SD-Branch, ZTNA, and beyond. This allows us to support our partners and their customers in their journey to converging networking and security.”
“What this means for our MSSP partners is the creation of new revenue streams and the opportunity to help customers securely and seamlessly reduce complexity, improve digital experience, and maximize ROI,” he added.
In terms of the trailing-12-month EBITDA margin, FTNT’s 25.26% is 206.3% higher than the 8.25% industry average. Likewise, the stock’s 75.90% trailing-12-month gross profit margin is 55.8% higher than the 48.72% industry average. Additionally, its 20.46% trailing-12-month net income margin is significantly higher than the 1.71% industry average.
FTNT's net revenue for the first quarter ended March 31, 2023, increased 32.2% year-over-year to $1.26 billion. Its total gross profit increased 36.2% year-over-year to $954.50 million. Its non-GAAP operating income rose 58.9% year-over-year to $334 million.
In addition, its non-GAAP net income attributable to FTNT rose 73.9% over the prior-year quarter to $269.70 million. The company’s non-GAAP EPS attributable to FTNT came in at $0.34, representing an increase of 78.9% year-over-year.
Street expects FTNT’s EPS and revenue for the quarter ended June 30, 2023, to increase 42.7% and 26.3% year-over-year to $0.34 and $1.30 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 54.6% year-to-date to close the last trading session at $75.59.
FTNT’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked first out of 21 stocks in the Software - Security industry. It has an A grade for Quality and a B for Growth and Sentiment. Click here to see FTNT’s rating for Value, Momentum, and Stability.
Check Point Software Technologies Ltd. (CHKP)
CHKP develops, markets, and supports a range of products and services for IT security worldwide. The company offers a multilevel security architecture, cloud, network, mobile devices, endpoints information, and IOT solutions.
On June 23, 2023, CHKP partnered with TELUS to launch TELUS Cloud Security Posture Management (CSPM) in Canada. TELUS CSPM, powered by Check Point's AI-driven threat prevention technology, offers Canadian organizations a managed solution to monitor and improve their cloud security posture in real-time.
On June 21, 2023, CHKP and Everphone announced their collaboration in the area of advanced threat protection for corporate smartphones. Everphone will integrate CHKP's Harmony Mobile into its Device as a Service (DaaS) offering, helping it offer comprehensive protection against various cyber threats.
“Mobile security has never been as critical as it is today. This partnership aims to safeguard organizations from evolving cyber threats by blending Harmony Mobile’s robust protection with Everphone’s DaaS offering. This unique collaboration paves the way for a new benchmark in mobile security, delivering a seamless and secure user experience without compromising productivity,” said Sherif Seddik, President EMEA Sales at CHKP.
In terms of the trailing-12-month EBITDA margin, CHKP’s 38.69% is 369% higher than the 8.25% industry average. Likewise, its 34.49% trailing-12-month net income margin is significantly higher than the 1.71% industry average. Moreover, its 87.64% trailing-12-month gross profit margin is 79.9% higher than the 48.72% industry average.
For the fiscal first quarter ended March 31, 2023, CHKP’s total revenues increased 4.3% year-over-year to $566.20 million. Its non-GAAP operating income came in at $238.40 million. The company’s non-GAAP net income rose 7% year-over-year to $217.90 million. Also, its adjusted EPS increased 14.6% year-over-year to $1.80.
For the quarter that ended June 30, 2023, CHKP’s EPS and revenue are expected to increase 15.6% and 3.2% year-over-year to $1.90 and $589.51 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 12.1% to close the last trading session at $125.62.
CHKP’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality. It is ranked #3 in the same industry. To see CHKP’s ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
Trend Micro Incorporated (TMICY)
Headquartered in Tokyo, Japan, TMICY develops and sells security-related software for computers and the Internet. The company offers hybrid cloud security solutions, such as conformity, workload, container, file storage, application, network, and open-source security products.
On February 22, 2023, TMICY announced it had signed an agreement to acquire Anlyz. This acquisition will enhance Trend's orchestration, automation, and integration capabilities, enabling enterprises and MSSPs to enhance operational efficiencies, reduce costs, and achieve better security outcomes.
In terms of the trailing-12-month EBITDA margin, TMICY’s 23.89% is 189.6% higher than the 8.25% industry average. Likewise, its 75.73% trailing-12-month gross profit margin is 55.4% higher than the 48.72% industry average. Additionally, its trailing-12-month net income margin of 11.93% is 596.7% higher than the 1.71% industry average.
For the fiscal first quarter ended March 31, 2023, TMICY’s net sales increased 16.4% year-over-year to ¥58.70 billion ($407.90 million). Its gross profit rose 16.4% year-over-year to ¥44.31 billion ($306.86 million). The company’s net income came in at ¥6.37 billion ($44.11 million). In addition, its EPS came in at ¥45.82.
Analysts expect TMICY’s EPS for the quarter ending December 31, 2023, to increase 376.5% year-over-year to $0.34. Its revenue for the quarter ended June 30, 2023, is expected to grow 7.1% year-over-year to $435.01 million. Over the past six months, the stock has gained 5.1% to close the last trading session at $48.60.
TMICY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Quality. Within the Software - Security industry, it is ranked #2. To see TMICY’s rating for Growth, Momentum, and Sentiment, click here.
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FTNT shares were trading at $74.15 per share on Monday morning, down $1.44 (-1.91%). Year-to-date, FTNT has gained 51.67%, versus a 16.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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