Jefferies Initiates Coverage of Cyber Stocks

By Sam Boughedda

In separate research notes Thursday, a Jefferies analyst initiated coverage of cyber stocks Zscaler (NASDAQ:), Palo Alto Networks (NASDAQ:), Okta, Inc. (NASDAQ:), and Fortinet (NASDAQ:).

He initiated coverage of Zscaler with a Hold rating and $200 per share price target, saying the company is positioned well, but it is reflected in its valuation.

“A pioneer in network security, Zscaler is in the early stages of monetizing its position via its unique internet architecture while meeting pressing customer demand for consolidation of security functionalities,” wrote the analyst. “ZS has astutely leveraged this position via its GTM prowess, resulting in significant growth and share gains. However, 15x EV/CY23E rev seems fairly priced, with appreciation driven by upside that we believe is likely to be more muted than prior years.”

The analyst assumed coverage of Palo Alto Networks, maintaining a Buy rating and setting a $220 price target.

“PANW’s recent results appear immune to macro as it’s accelerated billings growth 3 straight Qs. PANW’s combination of holistic platform (spend consolidator) levered to the cloud as well as prudent FY23 guidance creates an appealing set up for our fav cyber platform with shares trading at 8x EV/ CY23E rev—attractive for an asset delivering 20%+ rev growth/OPM LT,” he explained.

Okta was initiated with a Buy rating and a $90 per share price target, with the analyst stating it is a fantastic buying opportunity.

“Myriad issues (cyber incident, macro, & sales integration) have plagued Okta this year, leading to a share overcorrection (-73% ytd; 4x EV/CY23E rev). This has, in our view, created an attractive entry point for a leading cyber asset. While we do not discount the amount of work in front of the company (likely to take a few quarters), we highlight a fantastic product, coupled with a large and underpenetrated market,” wrote the analyst.

Finally, on Fortinet, the analyst initiated a Buy rating and $65 price target saying the company represents a rare blend of growth and GAAP profitability as it “continues to execute on its vision of converged security & networking.”

“Businesses will rely on a hybrid environment for the foreseeable future and the combined cyber/networking market is massive, making durable & efficient growth feel achievable. Shares trade at just 22x EV/ CY23E FCF vs large-cap median 25x which we believe offers downside protection to complement share gains,” stated the analyst.