In today's digital age, the urgency to beef up cybersecurity has never been greater. With the global cybersecurity market set to hit $208.80 billion this year, companies are investing heavily to combat rising threats. As attacks become increasingly frequent and costly, businesses can't afford to skimp on protection.
Given this backdrop, investors could consider safeguarding their portfolios by investing in fundamentally strong software-security stocks like Check Point Software Technologies Ltd. (CHKP), Trend Micro Incorporated (TMICY), and Fortinet, Inc. (FTNT).
Just recently, the importance of cybersecurity was brought into sharp focus when a software glitch from cybersecurity giant CrowdStrike Holdings, Inc. (CRWD) caused a significant tech outage, locking millions of users out of their Windows devices. While this hiccup sent CRWD’s stock reeling with a double-digit drop, it also drew attention to the ubiquitous technology.
Moreover, the increasing threat of cybercrime has prompted governments and corporations to invest billions in bulking up their digital security. For instance, the Biden administration proposed $13 billion in cybersecurity funding across civilian departments and agencies for fiscal 2025, up from the $11.8 billion allocated in fiscal 2024 and the $11.3 billion from fiscal 2023.
In addition, the fiscal 2025 proposal includes $3 billion for the Cybersecurity and Infrastructure Security Agency, reflecting a $103 million increase over the agency’s current budget. The secular trend has created a significant revenue opportunity for companies specializing in internet-enabled protection services and products.
The global cybersecurity market is projected to grow from $193.73 billion in 2024 to $562.72 billion by 2032, exhibiting a CAGR of 14.3% during the forecast period.
Considering these factors, let's evaluate the three Software - Security stocks, beginning with the third choice.
Stock #3: Fortinet, Inc. (FTNT)
With a market cap of $43.84 billion, FTNT provides cybersecurity and convergence of networking and security solutions worldwide. The company offers secure networking solutions focusing on the convergence of networking and security, network firewall solutions, wireless LAN solutions, and secure connectivity solutions.
On June 10, 2024, FTNT agreed to acquire Lacework, a data-driven cloud security company. By integrating Lacework’s CNAPP solution, the company aims to enhance its portfolio, creating one of the most comprehensive AI-driven cloud security platforms. This acquisition will enable customers to better identify, prioritize, and remediate risks and threats in complex cloud-native infrastructure from code to cloud. Expected to close in the second half of 2024, this move aligns with FTNT’s growth strategy and commitment to innovation.
For the first quarter of 2024, which ended on March 31, FTNT's total revenue increased 7.2% year-over-year to $1.35 billion, while its gross profit grew 9.8% from the year-ago value to $1.05 billion. Its non-GAAP operating income stood at $386.10 million, up 15.6% year-over-year.
The company’s non-GAAP net income amounted to $333.90 million or $0.43 per share, reflecting an increase of 23.8% and 26.5% year-over-year, respectively. In addition, its cash flow from operations rose 22.6% from the prior-year quarter to $830.40 million.
Analysts expect FTNT’s revenue for the second quarter (ended June 2024) to increase 8.5% year-over-year to $1.40 billion, while its EPS for the same quarter is expected to grow 7% from the prior year to $0.41. Moreover, the company has consistently exceeded expectations, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 2%, closing the last trading session at $57.39.
FTNT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
FTNT has an A grade for Quality. It is ranked #8 out of 23 stocks in the Software - Security industry. Click here to access the other FTNT ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: Trend Micro Incorporated (TMICY)
TMICY is headquartered in Tokyo, Japan, and has a market cap of $6.06 billion. The company develops and sells security-related software for computers and related services globally. It offers platforms such as vision one platform, attack surface management, extended detection and response, cloud security, network security, OT/ICS security, and threat intelligence.
On June 12, TMICY unveiled its first consumer security solutions designed to protect against emerging threats in the AI PC era. These advanced capabilities will be available to consumers in late 2024. AI PCs powered by neural processing units (NPUs) enable the local running of AI applications, offering privacy and performance benefits.
In May, the company introduced Inline NDR, a breakthrough in network detection and response (NDR) technology, available through the Trend Vision One platform. Unlike isolated solutions, Inline NDR enhances detection and response across all security functions.
Its unique capabilities include enforcement, visibility, and network decryption without compromising quality. Integrating with Trend Vision One allows customers to avoid deploying multiple disconnected solutions and enables security teams to operate more efficiently.
TMICY’s net sales for the fiscal first quarter that ended March 31, 2024, stood at ¥65.93 billion ($428.67 million), up 12.3% over the prior-year quarter. Its operating income increased 27% year-over-year to ¥12.13 billion ($78.84 million).
In addition, its net income attributable to owners of the parent rose 68.7% from the prior year quarter to ¥10.75 billion ($69.92 million). Also, its net income per share grew 72% year-over-year to ¥78.83.
Street expects TMICY’s revenue for the third quarter (ending September 2024) to increase 2.9% year-over-year to $436.58 million. Its EPS for the current quarter is expected to register a robust growth of 907.1% from the previous year, settling at $0.50.
The stock has gained 26.5% over the past nine months to close the last trading session at $46.51.
It’s no surprise that TMICY has an overall rating of B, equating to a Buy in our POWR Ratings system. It also has a B grade for Value, Stability, and Quality. It is ranked #6 out of 23 stocks in the same industry.
Beyond what is stated above, we’ve also rated TMICY for Growth, Momentum, and Sentiment. Get all TMICY ratings here.
Stock #1: Check Point Software Technologies Ltd. (CHKP)
Headquartered in Tel Aviv, Israel, CHKP develops, markets, and supports a range of products and services for IT security globally. The company offers a multilevel security architecture, cloud, network, mobile devices, endpoints information, and IOT solutions. It has a market cap of $20.35 billion.
On July 11, CHKP announced that its board of directors had authorized a $2 billion expansion of the company’s ongoing share repurchase program. This expanded buyback, expected to be completed by the fourth quarter of 2024, reflects confidence in the company's financial health and aims to boost shareholder value and investor sentiment.
On June 11, CHKP announced CloudGuard WAF-as-a-Service, an automated, AI-powered web application firewall that offers organizations a solution to prevent cyber threats and protect web applications from unauthorized access and data breaches. Prioritizing prevention, simplicity, and scalability, it delivers an easy and cost-effective way to secure cloud applications and APIs efficiently.
For the fiscal second quarter that ended June 30, 2024, CHKP’s total revenues stood at $627.40 million, up 6.6% year-over-year, while its non-GAAP operating income increased marginally from the year-ago value to $265.10 million. The company’s non-GAAP net income and earnings per share increased 3.2% and 8.5% over the prior-year quarter to $246 million and $2.17, respectively.
The consensus revenue estimate of $635.06 million for the fiscal third quarter (ending September 2024) represents a 6.5% increase year-over-year. The consensus EPS estimate of $2.25 for the ongoing quarter indicates an 8.7% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
CHKP shares have surged 40.2% over the past year and 20% year-to-date to close the last trading session at $183.37.
CHKP’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Sentiment. Within the same Software - Security industry, CHKP is ranked #3. Click here to see the additional ratings for CHKP (Growth, Value, Momentum, and Stability).
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FTNT shares were trading at $57.23 per share on Tuesday afternoon, down $0.16 (-0.28%). Year-to-date, FTNT has declined -2.22%, versus a 14.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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