Friday, December 13, 2019

A Current AIM Small Cap Equity Holding: CyberArk Software Ltd. (CYBR, $120.15): “Securing Enterprise & Gains”

CyberArk Software Ltd. (CYBR, $120.15): “Securing Enterprise & Gains”
By: Patrick N. Thiel, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

CyberArk Software Ltd. (NYSE:CYBR) is the global leader in privileged access security. The firm provides IT security solutions for enterprises and middle market firms running legacy in house security systems as well as cloud based solutions.  

• CYBR put to rest the concern regarding their CRO stepping down earlier this year – Matthew Cohen became the firm’s CRO effective December 2, 2019.

• Recently achieving Amazon Web Services Security Competency status will expand the firm’s relationship with AWS and further differentiate CYBR as an AWS Partner Network member.

• Management raised full-year revenue guidance after a solid third quarter with traction gaining across all business segments.

• Government spending lifted license revenue to $58 million in 3Q, a 25% increase over the same quarter last year.

Key points: 

CyberArk Software remains 'in-play' after gaining 20.6% in the month of November. In the 3Q conference call, CEO Udi Mokaday suggested the company is capable of maintaining robust growth heading into 2020 – increasing full year guidance on both top and bottom line figures. Management expects revenue growth of 26% YoY with an adjusted bottom line earnings of $2.58 to $2.61 a share. The firm has secured 200 new corporations thus far in Q4, carrying its customer count north of 5,000.

CyberArk named Mathew Cohen as Chief Revenue Officer in late November, with an effective start date of December 2, 2019. Ron Zoran will still stay on as an advisor through the first quarter of 2020 with great confidence that Mr. Cohen is the right person for the job. Mokaday and the rest of the executive team are also confident in their choice given Cohen’s successful work history. Mokaday stated, “We are thrilled to have Matt join CyberArk, Matt is a strong global leader and a great cultural fit for CyberArk. He adds a wealth of experience delivering comprehensive go-to-market strategies across functional teams to drive growth…” Cohen is expected to focus mainly on building out the firms SaaS solutions, driving growth through the development of new markets. Since 2013, Cohen has held several executive rolls with PTC, an application software company, exhibiting the skills and aptitude required to complement CyberArk’s growth strategy.

The recent designation achievement in AWS Security Competency sets the firm apart from competitors through the broad pipeline of companies running systems through AWS. Not only does this demonstrate CyberArk’s ability to develop advanced products, but also allows for middle market firms to access this much needed level of security in today’s day and age. AWS enables a highly scalable and cost effect solution to companies of all sizes, a key area of development in regards to CYBR building out their middle market offerings.

Government spending and American investment combated the uneven spending in the EMEA region. The region slowed to ~13% growth in the quarter due to seasonality and fluctuating budgets. Negative sentiment has been silenced given a historically backend loaded trend and comments from management indicating strong performance in the EMEA thus far in Q4. An optimistic outlook given regulation adoption in the coming years should continue to carry shares higher in the coming months anticipating a strong finish to the year. 

What has the stock done lately?

Shares in November far outpaced the S&P, gaining just north of 20% in the month versus the S&P’s ~3.5% gain. The stock experienced a dip earlier in the year due to concerns about the industries demand after a weak competitor earnings report. The stock was also under pressure due to the CRO announcing his resignation, but both problems seem to be in the past after the Q3 earnings and hiring of Matthew Cohen.

Past Year Performance: 

In the past year, CYBR shares have increased ~59%. In the same period, the SPY index gained only ~17%. That being said, there are significant potential gains in the short term based off of the technicals in the current trend. When running a regression test, the stock appears to be trading near the 1st standard deviation below the mean, supplemented by a slightly oversold RSI reading.

Source: Bloomberg

My Takeaway
With several positive catalysts in the pipeline and a positive outlook from management, I am placing an overweight rating on CYBR. Matthew Cohen joining management has been perceived as an investor friendly action given the streets bullish sentiment and a climbing share price. The miss from ForeScout (FSCT) amid other concerns have been silenced in the recent weeks and I believe there is a bright future ahead for cybersecurity in general with CyberArk leading the way.

Source: Bloomberg