No More 'Easy Money' In Cybersecurity, UBS Says

A new report by UBS analyst Brent Thrill warns cybersecurity stock investors that the “easy money” in the segment has already been made and that investors will NOW need to be more selective when it comes to cybersecurity stocks. Despite the warning and a downgrade of two top cybersecurity stocks, UBS maintains its positive overall outlook for the space.

No spending slowdown in sight
UBS’s basket of cybersecurity stocks is up an impressive 36 percent so far in 2015, and the firm sees no slowdown in the momentum of the cybersecurity business any time soon. According to the report, the three key drivers in the space, strong end-demand, a constant stream of security breach headlines and positive vendor commentary, will likely continue in coming months.

Crowded trade
Overall, UBS believes that cybersecurity stocks have a healthy enough near-term fundamental outlook to continue to “grind higher.” However, Thrill notes that long cybersecurity has become a crowded trade and that the easy money has likely already been made. “All key players will lap a combination of tough comps and escalating execution expectations that will narrow the margin for error on the stocks,” Thrill explains.

Downgrades
In the report, UBS downgraded the stocks of both FireEye Inc FEYE and Symantec Corp SYMC.

UBS currently lists Palo Alto Networks Inc PANW as its best-positioned Buy-rated cybersecurity stock. The firm also remains bullish on Buy-rated Fortinet Inc FTNT.

UBS now has a Neutral rating on FireEye and Check Point Software Technologies Ltd CHKP and a Sell rating on Symantec.