The Tailwinds Expected To Boost Cybersecurity In 2017

Goldman Sachs said in a research note published Thursday it viewed the increased government spending on cybersecurity to serve as a catalyst for cybersecurity stocks such as FireEye Inc (NASDAQ: FEYE), Cyberark Software Ltd (NASDAQ: CYBR) and Palo Alto Networks Inc (NYSE: PANW).

2–5% Revenue Tailwind

Gabriela Borges, an analyst at Goldman Sachs, estimates a 2–5 percent revenue tailwind from higher federal spending for the stocks in the firm's coverage over the next 12 months. The analysts clarified that this boost is not included in the firm's current estimate.

Federal Budget For Cybersecurity

Goldman noted that the Obama administration has earmarked $19 billion for cybersecurity in its 2017 budget proposal, representing a 35 percent year-over-year increase. This, according to the firm, is a quantum leap, given the static level of spending budget for cyber security between 2014 and 2016. The firm feels the move is justified, as the 2016 Verizon Communications Inc. (NYSE: VZ) breach report showed that public sector sees 17 times more cyber incidents than the others.

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Giving the break-up of the budget, Goldman noted that $3.1 billion is for modernizing federal agencies' IT infrastructure. The budget proposals also envisage more streamlined incident response and multi-factor authentication.

Given that cybersecurity is a bipartisan issue, Goldman expects Congress to approve the fiscal spending plans. Additionally, the firm expects both presidential candidates, Hillary Clinton and Donald Trump, to give cybersecurity an increased focus, going by their comments on various platforms.

Cybersecurity Stocks, Prospects

Palo Alto: Goldman views this as one of the best ways to benefit from investing in the space, given its 10–15 percent public sector exposure and increased focus on federal opportunities.

Rated Buy.

FireEye: Has 15 percent exposure to public spending.

Rated Neutral.

Cyberark: Has 7 percent public spending exposure, with Goldman seeing upside potential due to several new U.S. certifications.

Rated Neutral.

As such, Goldman believes all these companies are well positioned.

At Time Of Writing ...

• Cyberarck was down 0.57 percent at $50.16.
• FireEye was down 1.82 percent at $14.59.
• Palo Alto was up 1.59 percent at $157.04.

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