KeyBanc raises price targets on cyber stocks after VAR survey

Investing.com -- KeyBanc Capital Markets has lifted price targets for several key cybersecurity stocks following positive findings from its 3Q24 value-added reseller (VAR) survey.

The survey’s findings revealed improved performance and outlooks across the sector, leading the firm to increase its estimates and target prices for Palo Alto Networks (NASDAQ:PANW ), Cyberark Software Ltd (NASDAQ:CYBR ), and Microsoft (NASDAQ:MSFT ).

Specifically, meets and beets from the respondents improved to 75%, up from a dismal 45% and 50% in the previous two years, KeyBanc analysts said in a Thursday note.

When it comes to 2024 IT budgets, analysts noted “a slight uptick in growth expectations, but the bigger increase came in 2025 IT budget expectations, which this group now forecasts to accelerate to 4.4% compared to a 3.2% expectation 90 days ago.”

“37% of VARs expect to see an IT budget recovery in the first half of 2025. That is an uptick from last quarter and, importantly, begins in just a couple months, meaning the visibility is higher than it was previously,” the note writes.

Security-specific meets and beats remained steady at 80%, consistent with the last quarter.

As a result of the survey, KeyBanc raised its price targets for several stocks. Palo Alto Networks saw its target increase to $435 from $376.15, CyberArk’s target was lifted to $340 from $295.65, and Microsoft’s target was raised to $505 from $416.72.

Fortinet (NASDAQ:FTNT ), although not receiving a price target change, benefited from improved meets and beats, positioning it as the top-performing security vendor this quarter.

KeyBanc also raised its estimates for these companies, citing strong demand for cybersecurity solutions, particularly in endpoint protection, firewall refresh cycles, and identity and access management.

"Firewall refresh expectations upticked, with 41% of respondents expecting improvement or activity in the next six months, up from 30% last survey," noted the firm, which is seen as a positive driver for vendors like Palo Alto and Fortinet.

Despite some macroeconomic challenges, KeyBanc remains optimistic about the sector, with cybersecurity budget growth forecasted to accelerate. The firm expects security spending to grow by 11.7% in 2024 and accelerate to 14.4% in 2025.

The survey also revealed that 26% of respondents noticed slight improvement in the macro environment compared to the previous quarter, a rise from 16%. However, 74% have not observed or anticipate any recovery in IT spending for the rest of 2024.

Looking ahead, 37% foresee a recovery in the first half of 2025, while another 37% expect it to occur later. The U.S. election is affecting decision-making for 26% of respondents, with many reporting delayed projects and a "wait and see" stance.

AI and generative AI continue to be the leading drivers of digital transformation, but 94% of respondents said most of their clients are still in the early stages, primarily research or pilot testing. Despite the focus on AI, only 29% think that AI investments are impacting other areas of IT spending.

Source: Investing.com