Digital attacks are quickly becoming the greatest threat to our national security. Hillary Clinton has addressed the matter on multiple occasions over the course of her campaign and insists on taking an aggressive stance if she is elected president.
Regardless of who wins the election, cyber security will have a growing importance within the United States. We have already seen several companies embark on tackling this growing menace including large names like Cisco Systems (NASDAQ:CSCO). But the majority of the space is occupied by smaller cap companies such as, Fortinet (NASDAQ:FTNT), Check Point (NASDAQ:CHKP) and Palo Alto Networks (NYSE:PANW). These names, along with a handful of others, encompass the growing cyber security space which is seeing earnings and share prices skyrocket.
Cisco Systems
Information Technology – Communications Equipment
Cisco is the largest player in the cyber security space but its priorities go beyond just security. They continue to be a leader in data center switching, IoT and other next generation technologies. Cisco’s positions in all these high growth markets have helped boost earnings in recent quarters. Both earnings and revenue have consistently outperformed expectations while growth rates remain modest. Shares are now up 12% year to date and over 8% in the past 12 months. Given Cisco’s participation in pretty much every fast growing business, it won’t be surprising if they extend their winning streak with this upcoming report. Analysts at Estimize are calling for a 2% increase in EPS to 60 cents on a 1% decline in revenue to $12.44 billion for Cisco’s fiscal first quarter.
FireEye (NASDAQ:FEYE)
Information Technology – Software
Investors have hammered FireEye this year as growth hits a wall and both earnings and revenue continue to fall short of analyst’s expectations. The cybersecurity company has missed on the top line in the past two quarters while its losses remain relatively high. Shares are now down 37% year to date and 59% in the past 12 months. It isn’t all that bad though. FireEye continues to show strong subscription revenue growth which jumped 37% last quarter. Additionally the recent chatter surrounding the Yahoo (NASDAQ:YHOO) hacks being from Russia are pushing companies to implement additional security measures. Investors still shouldn’t have their hopes set too high for this upcoming quarterly report. The Estimize consensus has dropped significantly in the past 3 months and is now calling for a 29 cent loss on $184.63 million in revenue.
Fortinet
Information Technology – Software
Fortinet, like some of the other names on this list, is seeing a marked slowdown on both the top and bottom line. As a result, shares are down about 40% year to date and will continue to drop for the remainder of the year. Earlier this month, management incited a massive sell-off after releasing weak preliminary third quarter results. The company reported revenue of $311 and $316 million, well below analysts expectations. Early indications from management suggest the drop off is related to a drop in urgency from consumers. The period of frenzied spending on data protection is likely over, as we now have a better picture of the landscape of cyber security. Fortinet has the market share to remain resilient but it won’t be surprising if we see a broader pullback from this high growth sector. Analysts at Estimize are calling for earnings per share of 17 cents on $317.42 million in revenue, reflecting a significant increase on both the top and bottom line.
Check Point Software
Information Technology – Software
Check Point is in a similar position to FireEye, where weak earnings growth have caused shares to take a tailspin. Check Point’s most recent quarter featured a 10% gain on the bottom line and 7% on the top, both significantly slower than prior reports. A large portion of its revenue gains were driven by a double digit increase in subscription, software and licensing fees. Stringent cost controls from management have held them back from igniting growth. While this can often be a good thing, investors have reacted negatively to these actions. Shares are down about 15% year-to-date and are historically flat immediately following an earnings report. The Estimize community has followed investors’ lead, ratcheting down estimates for the upcoming quarter. Analysts are looking for earnings per share of $1.10 on $424.56 million, consistent with the ongoing downward trend.
Palo Alto Networks
Information Technology – Software
Shares of Palo Alto Networks are up over 20% in the past 3 months thanks to significant gains on both the top and bottom line. The cyber security company has deliver consistent improvements in each quarter for over 2 years. A large portion of this can be credited to the ongoing transition toward its subscription based recurring revenue initiative. In 2016, the product unit generated 48% of its total revenue with the remaining piece coming from service sales. This is a significant improvement from 2015 which has helped inspire investors to purchase the stock. Unfortunately, Palo Alto has a few significant roadblocks causing near term headwinds including slowing growth, increasing competition, and soaring expenses. It wouldn’t be shocking if any of these factors held back growth this quarter or in the future. Expectations have been set relatively low to reflect this ongoing uncertainty. The Estimize consensus is calling for earnings of 56 cents per share on $401.76 million in revenue, reflecting a 56% increase on the bottom line and 35% on the top.