Cybersecurity presently plays a vital role as it allows organizations to detect, monitor, report, and counter cybercrimes and sensitive data theft. Cybersecurity services are in demand among various industries, which include BFSI, IT, retail, healthcare, government, manufacturing, and others.
According to Fortune Business Insights, the global cyber security market is expected to hit $376.32 billion, growing at a CAGR of 13.4% between 2022 and 2029. The increasing number of e-commerce platforms and the rising integration of machine learning, internet-of-things, and cloud should fuel the industry's growth during the forecast period.
With this in mind, today, I’ll analyze and compare two cybersecurity stocks, Palo Alto Networks, Inc. (PANW) and Fortinet, Inc. (FTNT), to determine which is currently a better investment.
Palo Alto Networks is a cybersecurity company that offers firewall appliances and software in the U.S. and internationally. Fortinet provides broad, integrated, and automated cybersecurity solutions worldwide.
Year-to-Date (YTD) shares of PANW are up 11.5%, while FTNT is down 5% over the same period.
Recent Developments
On April 4th, Palo Alto Networks witnessed bullish momentum after BofA Securities had upgraded the price target on PANW stock. More precisely, the firm’s analyst Tal Liani has boosted PANW’s price target to $675 from $565, maintaining a “Buy” rating. The analyst noted Palo Alto's strong recurring revenue growth in Q2 with a solid future growth expected in Cloud/Software segments, emphasizing the company's "successful transition" to the cloud.
Recent Quarterly Performance & Analysts Estimates
On February 22nd, Palo Alto Networks, Inc. reported earnings for the second fiscal quarter of 2022. In FQ2, total revenue rose 29.4% year-over-year to $1.32 billion due to a 20.9% YoY increase in Product revenue to 308 million and a 32.4% YoY growth in Subscription and Support revenue to $1.01 billion. Also, the company topped the Wall Street consensus revenue estimates by $40 million. Besides, its Non-GAAP EPS has been reported at $1.74, beating analysts' estimates by $0.09.
Furthermore, the company's second-quarter billings, which are defined as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, increased 32% YoY to $1.6 billion.
For the third fiscal quarter, analysts expect PANW's EPS to come in at $1.68, representing a 21.51% year-over-year growth. Also, its revenue for the third quarter of 2022 should advance 26.47% YoY to $1.36 billion.
Fortinet’s total revenue for its fourth quarter, ended December 31st, 2021, grew 28.8% year-over-year to $963.6 million. The revenue growth was related to a 27.2% year-over-year Service revenue increase to $584.7 million. Moreover, Product revenue soared 31.4% YoY to $378.9 million. Also, Fortinet surpassed the Wall Street consensus revenue projections by $2.08 million. The company reported a Non-GAAP EPS of $1.23, beating Wall Street estimates by $0.08.
It is important to note that Fortinet billings stood at $1.31 billion in Q4, representing a 36% year-over-year increase. The company also spent $571.8 million of cash for share repurchases during the quarter.
Currently, Wall Street expects FTNT's earnings to stand in the first quarter of 2022 1.85% lower YoY at $0.80 per share. Moreover, analysts anticipate its FQ1 revenue to grow 24.49% YoY to $884.23 million.
Comparing Options Market Sentiment
Looking at the May 20th, 2022, option chain for both PANW and FTNT, we can define options market sentiment by analyzing the open interest levels. In Palo Alto's case, the open calls/open puts ratio at the $630.00 strike price comes in at 2.82x, implying a bullish options market sentiment. When it comes to FTNT, the open calls/open puts ratio at the $350.00 strike price stands at 2.07x, indicating a relatively weaker bullish sentiment.
The Bottom Line
In my opinion, PANW, at these levels, is a better long-term buy. The company has recently received a positive upgrade at BofA Securities. Its financials also look better compared to FTNT ones mainly because of the higher revenue growth rate within the subscription segment, which can continue to boost its top-line figures. Moreover, PANW has higher forward growth rates. Finally, PANW has a relatively better options market sentiment.
PANW shares were trading at $607.75 per share on Wednesday morning, down $13.39 (-2.16%). Year-to-date, PANW has gained 9.16%, versus a -5.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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