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As enterprises and large organizations, both in the public and private sector, increasingly become dependent on the Internet for all aspects of day-to-day operations and commerce, the digital landscape is fraught with cyber risks as hackers seek to find and exploit new vulnerabilities. Whether the risk is domestic or foreign, hackers are always looking for an opportunity to steal data, money, or assets from any loopholes in our collective digital security system, as most recently evidenced by the new breaches on American Water Works (AWK) and Comcast (CMCSA).
Now, with the arrival of artificial intelligence (AI) and advanced threats like deep fakes, we have become vulnerable to an entirely new frontier of cyber risk. Against this backdrop, the global cybersecurity market is set for healthy growth in the coming years, as this corner of the market has emerged as the “defensive” niche within the tech space.
While this report predicts the cybersecurity market will reach a size of $562.72 billion by 2032 (from $193.73 billion in 2024), consulting major McKinsey is of the view that the opportunity is even bigger, describing an addressable market of up to $2 trillion.
With this in mind, investing in leading cybersecurity stocks makes for a wise move to profit from this trend. But which ones? To get you started, here are three well-established names that analysts at Barclays just named as their favorites in the industry. Here's a deeper dive on these three top cybersecurity picks.
#1. Check Point Software
Founded in 1993, Check Point Software (CHKP) is a global leader in cybersecurity solutions. It provides a comprehensive portfolio of products and services designed to protect organizations of all sizes from cyber threats. Its offerings include firewalls, threat prevention, cloud security and endpoint security.
Valued at a market cap of $21.6 billion, CHKP stock is up 25.3% on a YTD basis.
Notably, Check Point has been a steady performer over the last decade, compounding its revenues and earnings at CAGRs of 5.64% and 2.28%, respectively. Further, with the market for its products only expected to expand, this rate should increase.
CHKP's results for the second quarter were impressive, with both revenue and earnings topping estimates. While revenues grew by 7% from the previous year to $627 million, earnings per share (EPS) improved by 8% to $2.17, which surpassed the consensus estimate of $2.16. This marked the company's 15th consecutive quarterly earnings beat.
Further, CHKP reported 2Q24 billings of $620 million, implying a growth of 9.5% YoY, which is the second consecutive quarter of growth acceleration on this metric.
Cash flow from operations rose to $200 million in Q2 2024 from $191 million in Q2 2023. Overall, the company closed the quarter with a healthy cash balance of $3.1 billion.
During the quarter, the company also announced the appointment of industry veteran Nadav Zafrir as CEO. Zafrir has been a co-founder and managing partner at Team8, a global venture creation and venture capital fund, while also serving as Chairman of SolarEdge Technologies (SEDG), a smart energy company.
Notably, Check Point is actively expanding its AI chatbots to ecosystems beyond its own, aiming to leverage AI to tackle phishing concerns - especially in the U.S., where over 300,000 victims were reported in 2022. Its new products, particularly Harmony email and the Infinity platform, have gained significant traction, contributing around 15% of total revenue after being launched just three years ago. The company's decision to increase sales capacity has started to yield results, with improvements in salesforce productivity stemming from investments made 9-12 months ago, driving demand for these newer products.
Additionally, Check Point’s SASE solution is expected to be fully integrated by year-end, opening up more cross-selling opportunities across its product lines. This integration aligns with the company’s strategy to broaden its reach and enhance product adoption, further supporting its growth trajectory.
Analysts have deemed CHKP a “Moderate Buy” overall, with a mean target price of $192.92 and a high target price of $225. While the mean target price may be surpassed soon, the high target price denotes an upside potential of about 17.5% from current levels. Out of 31 analysts covering the stock, 10 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 20 have a “Hold” rating.
#2. Cyberark Software
CyberArk Software (CYBR) was founded in 1999 by Udi Mokady, a cybersecurity pioneer, with its headquarters located in Herzliya, Israel. CyberArk specializes in privileged access management (PAM). PAM is a cybersecurity practice that controls access to critical systems and data. CyberArk's solutions help organizations protect against cyber threats by managing, monitoring, and controlling privileged accounts.
The company currently commands a market cap of $11.6 billion, and its stock is up 26.6% on a YTD basis.
Cyberark beat analysts' estimates on both revenue and earnings in the second quarter. Revenues increased by 28% from the previous year to $224.7 million, led by 49% yearly growth in subscription revenues to $158.4 million. Annual recurring revenue (ARR), a key metric for platform companies, was $868 million, up 33% from the year-ago period.
EPS jumped to $0.54 from $0.03 in the year-ago period, easily outpacing the consensus estimate of $0.40. Notably, this was the 16th consecutive bottom-line beat for CYBR.
For the six months ended June 30, 2024, the company generated net cash from operating activities of $113 million. This compares favorably to an outflow of about $5 million in the prior-year period. Overall, the company closed the quarter with a cash balance of $641 million, up from $356 million at the start of the year, while its short-term debt levels stood at about $120 million.
CyberArk's leadership in the Privileged Access Management (PAM) space positions it well for future growth. PAM, an infosec solution that safeguards identities with elevated access, is projected to expand at a 21.5% CAGR from 2024 to 2028. As a market leader, CyberArk is set to benefit from increasing demand driven by rising ransomware, IoT malware attacks, and identity security spend.
Additionally, the company's recently completed acquisition of Venafi will expand its leadership in identity security. Venafi’s machine identity management solutions complement CyberArk's offerings without causing technological overlap.
Analysts have an average rating of “Strong Buy” for CYBR stock, with a mean target price of $310.25. That indicates expected upside potential of roughly 11% from current levels. Out of 29 analysts covering the stock, 26 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 1 has a “Hold” rating.
#3. Varonis Systems
Founded in 2003, New York-based Varonis Systems (VRNS) is a leading provider of data security and analytics solutions. The company helps organizations protect their sensitive data from unauthorized access, breaches, and insider threats. Its offerings include data security platform, insider threat detection and data governance.
Currently commanding a market cap of $6.2 billion, VRNS stock is up 20.6% on a YTD basis.
In its Q2 results, Varonis reported a beat on both revenue and earnings. Revenues of $130.3 million were up 12.9% year over year, with adjusted EPS rising to $0.05 from the previous year's $0.01. This was the fourth quarter in a row that VRNS beat bottom-line estimates.
Additionally, ARR was $584.2 million during the quarter, up 18% yearly.
Net cash from operating activities increased to $68.4 million for the six months ended June 30, 2024, up from $42.6 million in the same period a year ago. Free cash flow of $67.3 million was up 68.3%. Overall, the company's cash and equivalents balance at the end of the quarter was at $790.3 million, with short-term debt levels of about $125.5 million.
Varonis' managed data detection and response business is gaining momentum, driving new business wins and encouraging customers to switch from on-premise subscriptions to SaaS. SaaS now makes up 36% of total ARR, up from 23% in 4Q23. The unit economics remain strong, with over a 20% ASP uplift for SaaS vs. on-premise solutions, and these deals are larger due to bundle adoption. The quicker sales cycle of SaaS, which requires less hardware and staffing, also supports faster growth.
A significant growth driver for Varonis is its partnership with Microsoft (MSFT) Copilot. As Microsoft's AI-driven Copilot emphasizes data security, Varonis’ role in safeguarding AI-related data strengthens its market position and credibility.
Overall, analysts have an average rating of “Moderate Buy” for VRNS stock, with a mean target price of $58.13. This denotes an upside potential of about 3.6% from current levels. Out of 20 analysts covering the stock, 12 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 7 have a “Hold” rating.
