Ken Crowdstrike, Palo Alto Networks and Fortinet stocks fell Thursday morning


what happened

Unexpectedly good news led to unexpectedly bad results for cybersecurity stocks this morning, as December inflation came in at 6.5% — the slowest increase in years since October 2021. Normally you would expect this to be good news for stocks, since it could suggest to the Federal Reserve that it doesn’t need to raise interest rates as high or as often to combat runaway inflation.

Regardless, stock markets opened lower on Thursday, and cybersecurity stocks were among the biggest losers. Crowdstrike Holdings (CRWD 0.20%) 3.2% down since 10 am, Palo Alto Networks (PANW -0.54%) Slipped 2.2%, and Fortinet (FTNT -1.21%) decreased by 2.6%.

so what

Growth stocks like CrowdStrike, Palo Alto and Fortinet will sink on news that implies less Growth-slowing, interest rate-hiking activity by the Fed reversed a bit. That being said, there was some moderately bad news for the cybersecurity sector this morning which may explain the decline.

Following Wednesday’s cut by $1 Fortinet price target Barclays (which cut the stock to $56 a share), the associate investment bank this morning Morgan Stanley announced that it lowered price targets on CrowdStrike and Palo Alto Networks. Morgan Stanley warned investors in the cyber sector of analyst downgrades of earnings forecasts over the next few quarters, citing “significantly bearish” sales activity in cybersecurity in October, ratings-watcher The Fly reported.

The bank cut its price target for CrowdStrike by 22% to $135 per share and Palo Alto by 18% to $220 per share.

what now

That sounds bad, and it may be why these three cybersecurity stocks are trending lower today And yet, what to consider other Morgan Stanley said about the stock in today’s note. Specifically, the bank said it has “strong confidence” in Palo Alto Networks — its “top pick” in the cyber sector — and that it is also “buying this dip” in CrowdStrike.

Indeed, Morgan Stanley reiterated buy ratings on both CrowdStrike and Palo Alto Networks. Because cybersecurity is a major concern among corporate IT departments these days, analysts reason, cybersecurity is “the least likely area of ​​IT spending” even if companies generally decide to turn back technology investments in 2023.

That logic makes sense to me. I also agree with Morgan Stanley’s top two picks in the sector — and the order in which it ranks them. Valuing at just 17 times trailing free cash flow, and with consensus estimates predicting long-term earnings growth of 29%, Palo Alto Networks looks downright cheap to me. Earnings growth revisions — if they’re anything like Morgan Stanley’s — should slow Palo Alto’s growth rate. half This is to remove the stock’s margin of safety.

CrowdStrike, too, at under 36 times FCF and 31.5% projected growth rate, is starting to look attractive as it approaches fair valuation. Similarly Fortinet is at 32 times FCF and a 23.4% projected growth rate.

But if you’re looking for the hands-down cheapest bargain in the sector, I still think Palo Alto Networks is the stock.

Rich Smith holds positions at Palo Alto Networks. The Motley Fool has positions and recommends CrowdStrike, Fortinet, and Palo Alto Networks. The Motley Fool recommends Barclays Plc. Motley Fool has a revealing policy.


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