CyberArk: Beaten-Up Tech Play

Jul. 19, 2020 7:58 PM ETCyberArk Software Ltd. (CYBR)TWTR13 Comments

Summary

  • CyberArk to benefit from Twitter hack.
  • The company recently pulled guidance due to COVID-19, providing upside to forward guidance after analysts have gotten too negative.
  • The stock has upside back to 2019 highs near $150 with the tech sector remaining hot.

The one stock to possibly benefit from the cyber attack on Twitter (TWTR) is CyberArk (NASDAQ:CYBR). The privileged access management, or PAM, security provider is a leader in the space. My investment thesis remains bullish on buying the stock on this dip after the company pulled guidance due to unknown impacts from the coronavirus.

Image Source: CyberArk website

Twitter Hack

Last week, Twitter saw its site breached, potentially from an inside job. The company believes 130 major accounts were targeted by hackers attempting to gain bitcoins from clueless followers of these accounts on Twitter.

The key to the story is that hackers were able to gain privileged account access to control internal systems at Twitter allowing for access to the influential accounts. According to Twitter, a group of its employees with privileged access to internal systems granted access to the hackers for reasons suggested as "social engineering".

The hackers were able to reset 45 passwords and download data on eight accounts due to this access to internal systems. Twitter has not provided an account list, but CNET documented Joe Biden, Barack Obama, Elon Musk and Mike Bloomberg amongst the list of accounts hijacked.

Clearly, Twitter needs another level of security to determine whether an external source has breached an internal system regardless of having the proper access codes. Not only for internal systems, but whether somebody with a password to a Twitter account is the valid owner.

The question is really whether CyberArk has the solution to prevent this problem at Twitter. The recent purchase of Idaptive presumably provides the AI-powered tools to escalate suspicious user interactions on privileged accounts. This fact should help the cybersecurity provider grab more urgency for customers to implement their security options versus the recent delayed action due to COVID-19.

Source: CyberArk June 2020 presentation

Upside Ahead

While a lot of technology companies benefited from the COVID-19 shift to work-from-home protocols, CyberArk found customers willing to delay purchases of their products not deemed urgent solutions. For Q2, CyberArk predicted an impact from customers delaying purchase decisions due to the coronavirus outbreak causing the company to pull guidance.

While the 2020 results are in question, the need for PAM is further enhanced by the cybersecurity issue at Twitter. CyberArk was on a nearly 20% growth rate, and the projection is for a rebound to a 19% growth rate in 2021. The Twitter hack should help accelerate revenues.

The stock traded up above $140 before the company lowered 2020 EPS targets to only $2.32 along with the Q4 results prior to the COVID-19 outbreak. Analysts had expected CyberArk to earn $2.79 for the year. The big cut was due in part to higher interest expenses for the year due to the convertible debt issuance, while the company was still maintaining 19% revenue growth targets for the year.

Even with the company pulling guidance following Q1 due to COVID-19, EPS estimates for the year are still up at $1.86. CyberArk is likely to beat these estimates considering the demand for expanded tech service in a WFH and online retail world.

With tech stocks remaining red-hot, CyberArk has the potential for a solid catch-up play in the rest of 2020. The stock was nearly $150 this time last year and is one of the worst-performing tech stocks with a 22.5% loss over the last year. With more and more business moving online, shoring up privileged account access is crucial, whether protecting customer social media access or crucial financial records.

The stock isn't cheap at 46x 2021 EPS estimates, but those numbers are down substantially from pre-virus estimates. Analyst estimates were closer to $3 per share before the crisis, and CyberArk likely reaches the highs near $150 on the reestablishment of those estimates.

Takeaway

The key investor takeaway is CyberArk is one beaten-down tech stock that should see some action here. The company provides privileged account access security tools, and the recent hijack of internal systems at Twitter should benefit the demand for its security offerings. Investors should use the weakness in CyberArk as a buying opportunity here.

This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.


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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CYBR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long TWTR.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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