As cyber threats continue to evolve, two leading companies have stood out with their proactive approach to cyber security, coupled with continuous innovation and adaptability. Industry peers Fortinet (FTNT) and CrowdStrike Holdings (CRWD) are dedicated to providing robust solutions tailored to modern security challenges. However, Wall Street is slightly more inclinedhospital wards one of those names over the other.
Compared to the 18% gain of the S&P 500 Index ($SPX), CrowdStrike has gained a massive 99.9% year to date, and is trading near its 52-week high. Meanwhile, Fortinet shares are up just 8.8%, largely due to management’s cautious outlook for the year.
Let’s see which of these two cybersecurity stocks is a better long-term buy and hold, according to Wall Street.
The Case for CrowdStrike
At the heart of CrowdStrike’s offerings is the Falcon platform, a comprehensive cloud-native solution that uses artificial intelligence (AI)machine learning (ML), and behavioral analytics to proactively detect, prevent and respond to cyber threats.
What sets CrowdStrike apart is its focus on endpoint security. CrowdStrike’s platforms not only stop existing threats, but also predict and prevent future attacks.
CRWD impressed investors with its two-quarter fiscal 2024 results, having 37% year-over-year in total income to 732 million USD. Annual recurring revenue (ARR) has also increased of 37% to $2.9 billion, demonstrating its ability to retain customers.
In addition, CrowdStrike helped its existing customers upgrade to more cloud-based modules. Especially, in Q3, approximately 63% of its subscription customers used five or more of its modules. This figure was 59% in the previous year’s quarter. In addition, the customer base with at least seven modules increased to 24% from 20% in Q2 fiscal 2023.
Based on its outstanding performance this year, investors and analysts are eagerly waiting CRWD’s fiscal revenues in Q3 2024to be released on November 28.
Administration anticipates total revenue for Q3 should be in the range of $775 million to $778 million, representing a 33.4% increase if the upper end of the target is met. Additionally, Q3 earnings per share (EPS) could increase by 85% year over year to $0.74. For the full fiscal year, revenue could arrive in the range of $3.03 billion to $3.04 billion, with EPS in the range of $2.80-$2.84. Meanwhile, analysts are predicting $0.74 EPS on $777.4 million in revenue for Q3.
In addition, analysts expect CrowdStrike’s revenue to increase 36% to $3.04 billion in fiscal 2024, up from $2.24 billion in fiscal 2023. Analysts forecast adjusted EPS of $2.83 in fiscal 2024, up from $0.79 per share in fiscal 2023. Analyst consensus forecasts for the year are within management forecast range
Is CRWD a Buy, According to Wall Street?
Overall, Wall Street rates CRWD as a “strong buy.” Of the 37 analysts covering the stock, 33 have a “strong buy” rating, 2 have a “moderate buy” rating, and 2 have a “hold” rating. With the outstanding growth in its share price this year, CRWD has outperformed its average target price of $200.76.
Soon, CRWD’s third-quarter results will determine whether the stock can move higher and reach the lofty target price of $245, which implies a 16% upside potential from current levels.
CrowdStrike is priced at 13 times forward 2025 projected sales and 59 times.s forward earnings. However it looks expensive, it seems reasonably priced for a high-performance growth stock with AI opportunities. Currently, analysts predict that its fiscal 2025 revenue will increase by 28% to $3.9 billion, and earnings will rise by 24% to $3.53 per share.
The Case for Fortinet
Fortinet provides robust network security solutions, with a wide range of products addressing various aspects of cyber security. Its strength lies in network security, with a focus on firewalls, VPNs and intrusion prevention systems. The company’s Unified Threat Management (UTM) solutions provide all-in-one protection, simplifying security operations for businesses.
In addition, its product, the FortiGate firewall, is known for its reliability, scalability and comprehensive protection against a wide array of threats. In the third quartertotal revenue grew 16% year over year to $1.3 billion, largely driven by its Services revenue, which increased 28% from Q3 2022.
Total billings in the quarter increased 5.7% to $1.49 billion. Invoices are invoices that have been sent to customers but have not yet been recognized as revenue.
While Fortinet’s third quarter results were satisfactory, management’s review of full-year guidance weighed on the company’s stock performance. For the whole year, administration expect income in the range of $5.27 billion to $5.33 billion, down from the previous estimate of $5.35 billion to $5.45 billion.
Meanwhile, billings are expected to be in the range of $6.09 to $6.23 billion, down from $6.49 to $6.59 billion. Adjusted EPS for the year could be in the range of $1.54 to $1.56. Speaking of the leadership on the Q3 earnings callmanagement emphasized, “We continue to see increased negotiation and longer sales cycles, which limits our short-term results.”
Meanwhile, analysts predict 20% year-over-year growth in revenue to $5.3 billion, and a 31% increase in EPS to $1.56 for the full year 2023.
That said, Fortinet is waiting the relaxation of macro headwinds and the benefits of its cloud-based security platforms, SASE and SecOps, to accelerate billing growth in 2023, leading to double-digit growth by the second half of 2024.
Is FTNT a Buy, According to Wall Street?
Analysts have assigned a consensus “moderate buy” rating to FTNT, with an average target price from $58.90. This indicates an additional potential of 10.2% over the next 12 months. Of the 33 analysts covering the stock, 14 have a “strong buy” rating, one has a “moderate buy” rating, and 18 have a “hold” rating.
FTNT is rated at 31 times forward 2024 projected revenues. Analysts predict revenue growth of 8.3% in 2024. Fortinet’s expected growth rates do not justify its high valuation.
Which Stock Is the Better Buy?
By 2027, the cyber security market could grow at a compound annual growth rate of 9% to be valuable. 266 billion USD. Finally, both Fortinet and CrowdStrike are reputable cybersecurity companies capable of capitalizing on this growth.
However, Wall Street expects CrowdStrike to surpass Fortinet in terms of revenue and profit growth in the coming years. In addition, CrowdStrike’s strong fundamentals, resilient balance sheet and outstanding long-term AI-driven prospects justify its high valuation.
A research firm Canalys also recognizes CrowdStrike as the global leader in endpoint security sales, holding 18.5% market share in the second quarter of 2023.
Therefore, based solely on their performances this year and expected growth prospects, CrowdStrike appears to be a better long-term play. Although CrowdStrike has outperformed its average price target at the moment, I believe there is more upside to this high-growth stock.
As of the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.