Why Should You Retain Proofpoint (PFPT) In Your Portfolio?

A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. Here we discuss about Proofpoint Inc. (NASDAQ:PFPT) , a stock with expected long-term earnings per share growth rate of 23.3% and Growth Score of A.

In the last year, Proofpoint has outperformed the Zacks Computer Software-Service industry. The stock has returned approximately 55% in the said period, outperforming the industry’s gain of 26.9%.

We believe the stock has the potential to exceed expectations next year as well. The reasons behind our optimism include a healthy cyber-security market, benefits from increasing migration to Microsoft’s (NASDAQ:MSFT) Office 365 as well as acquisitions.

Let’s discuss them one by one.

Healthy Cybersecurity Market

We believe Proofpoint will continue to benefit from the increasing demand for cyber-security solutions, given the recent rise in cyber-attacks. These include two massive ransomware attacks — WannaCrypt or WannaCry in May 2017 and Petya in June 2017 — and one major data breach at Equifax (NYSE:EFX) reported in September 2017.

Most recently, Expedia (NASDAQ:EXPE) reported a data breach where hackers stole customers’ information of 880K payment cards used on its consumer platform as well as its partner’s platform where Orbitz is used as a booking engine.

All these have spurred demand for security-related products among enterprises and governments across the world. Per a latest research report from Gartner (IT), worldwide cybersecurity spending is likely to reach $96 billion in 2018 — marking 8% growth from the 2017 level of $89 billion. Another report from Markets and Markets suggests that the cyber security market is expected to witness CAGR of 11% in the 2017-2022 period.

We believe the demand for cyber-security solutions bodes well for Proofpoint as it will bring in new customers, thereby boosting its top-line performance.

Increased Migration to Office 365

As more and more enterprises are migrating to cloud, demand for better cyber-security measures has been on the rise. In the last few quarters, Proofpoint has been witnessing strong demand for its cyber-security suites from enterprises transitioning to cloud, particularly to Office 365.

Per the company, customers are looking for additional security capabilities that “complement and enhance the baseline solutions provided by Microsoft.” During 2017, a number of enterprises, which migrated to Office 365, bought the company’s security suit including a significant number of Fortune 500 enterprises.

We expect this bullish momentum to continue through 2018 as well, thereby boosting Proofpoint’s Protection and Advanced Threat segment’s top-line performance.

Acquisitions to Drive Revenues

Proofpoint has made strategic acquisitions to expedite growth. In February 2018, the company signed a definitive agreement to buy Wombat Security Technologies, Inc. In 2017, the company made two important buyouts, Cloudmark, specializing in providing security protection for messaging services, and Weblife.io, a leader in browser isolation solutions. In 2016, the company acquired two businesses — FireLayers and the Email Fraud Protection (EFP) business unit from Return Path.

The aforementioned buyouts have not only expanded Proofpoint’s product portfolio but also its customer and revenue base. We believe the company will continue with its strategy of growing through acquisitions, which will help to support its revenues.

Bottom Line

The aforementioned factors have positively impacted Proofpoint’s financial performance. Notably, the stock has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 35.3%. We believe the upbeat performance will continue in the quarters ahead, giving investors reasons to remain optimistic on the stock.

Currently, Proofpoint has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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