Software environment remains challenged but Jefferies increasingly positive on high-growth platforms

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Software environment remains challenged but Jefferies increasingly positive on high-growth platforms
Credit: © Reuters.

In a note covering cyber stocks on Thursday, Jefferies analysts upgraded shares of Zscaler (NASDAQ: ZS ) and CrowdStrike Holdings Inc. (NASDAQ: CRWD ) to Buy and downgraded Fortinet (NASDAQ: FTNT ) to Hold.

The analysts told investors that while the environment remains challenged, they have seen enough positive data to become increasingly positive on the high-growth platforms.

The firm lifted the CRWD price target to $225 from $170 per share, stating they have always viewed CRWD as an industry leader in Endpoint but were cautious on the shape of 2023 ARR given macro headwinds and the implied re-accelerating net new ARR in 2H.

"Our recent field work/vastly improved survey results are indicative that CRWD can meet this ramp and few cyber names feel as well positioned to
capture fed, vendor consolidation and cloud tailwinds as CRWD longer term," the analysts said.

The ZS price target was also raised to $225 from $170, with Jefferies labeling it a pioneer in network security.

"We view ZS as among the best placed for the distributed and cloud-based world. ZS is in the early stages of monetizing this opportunity ($60B TAM in CY23 growing 13% CAGR) with upside potential to estimates in FY24 supported by a blossoming fed business," the analysts said. "We believe that stabilized macro (supported by fieldwork) benefits ZS more than most."

The FTNT price target was lowered to $65 from $85. While the firm continues to remain favorable on FTNT's longer-term position as a cyber platform, they expect hardware digestion to last at least several quarters "which, coupled with the SMB/midmarket demand being weaker than enterprise will mitigate upside in the near term."

"FTNT will also likely have to invest in R&D/Capex to bolster its SASE portfolio, which could limit FCF expansion," the analysts added.

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