Zscaler and Varonis Systems are among the top 7 cybersecurity stocks this earnings season, Wedbush says

Cyber security
  • Wedbush analysts expect cybersecurity spending to jump more than 20% in 2021 alone.
  • Cybersecurity stocks will be buoyed by federal spending and a push towards hosting workloads on the cloud.
  • Varonis Systems, Zscaler, Telos Corp., Sailpoint Technologies, Tenable Holdings, Palo Alto Networks, and Fortinet are the firm’s top cybersecurity picks.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Zscaler and Varonis Systems are among Wedbush Securities’ top 7 cybersecurity stocks heading into what the investment firm believes will be a “strong” earnings season for the sector.

In a note to clients on Sunday, analyst Dan Ives and his team said they’re expecting a robust March earnings season for the cybersecurity space due to a growing threat landscape for tech companies and a continued shift to the cloud.

“Cybersecurity sector/stocks have been treading water so far this year, we view a ‘beat and raise’ 1Q as a positive catalyst to move the sector higher for the rest of 2021,” Ives wrote.

The analysts said recent checks on the cybersecurity industry have revealed strong deal flow making them bullish on the sector.

“In particular we are seeing strong deal flow around identity threat detection, privileged access management (PAM), endpoint/ vulnerability security, and a discernible shift to zero trust architecture all gaining steam in the field,” Ives wrote.

Ives and his team also said they believe 44% of workloads will move to the cloud by the end of 2021 and that figure will hit 55% by 2022.

This digital transformation to the cloud is set to buoy cybersecurity names moving forward, according to Wedbush. The firm forecasts cybersecurity spending to increase over 20% in 2021.

Data from Gartner backs up the Wedbush’s stance. Gartner is forecasting the worldwide information security market to reach over $170 billion in net value by 2022 amid a continued push towards cloud hosting.

The shift to cloud for both enterprises and governments is also being accelerated by big tech companies like Microsoft, Amazon, and Google, due to their recent push to enhance cloud offerings.

Ives and his team said they believe the cybersecurity sector could see an additional 300 bps+ lift from President Biden’s federal spending surge in light of recent nation-state attacks from Russia and China as well.

The analysts added that they expect a surge of M&A to take place within cybersecurity from both strategic and financial players in the coming months.

To that point, ThomaBravo announced it acquired the cybersecurity firm Proofpoint for $12.3 billion in cash on Monday.

Ives concluded by laying out his top seven picks for the cybersecurity industry, which included the following: Varonis Systems, Zscaler, Telos Corp., Sailpoint Technologies, Tenable Holdings, Palo Alto Networks, and Fortinet.