On Friday, Canaccord Genuity (TSX:CF) adjusted its outlook on CyberArk Software (NASDAQ:CYBR), increasing the price target to $310 from the previous $280 while maintaining a Buy rating on the stock. This change comes in response to CyberArk's impressive performance in the second quarter of 2024, where the company reported robust results that exceeded expectations.
CyberArk's quarterly report showed a 28% revenue growth and a 19% free cash flow (FCF) margin, leading to a Rule of 45+ achievement for the quarter. The company also upgraded its full-year guidance, surpassing expectations on all fronts, which signifies a strong future pipeline.
CyberArk's management highlighted the sustained prioritization of Privileged Access Management (PAM) solutions, which has led to high close rates, increased productivity, and strong pipeline conversion rates, even amidst challenging macroeconomic conditions.
The firm's analysis underscores CyberArk's strategic position in the security software market, particularly in the PAM segment. Canaccord Genuity emphasized CyberArk's expanding portfolio, which now includes Identity and Access Management (IAM), Cloud Infrastructure Entitlement Management (CIEM), DevSecOps, Endpoint Privilege Manager, and Machine Identity. The expectation is that CyberArk will continue to consolidate its market share, driven by a trend towards platform-based cybersecurity solutions.
Canaccord Genuity believes that CyberArk's leadership in PAM, which is increasingly critical for preventing breaches, will enable the company to maintain and potentially expand its market dominance.
This is expected to happen as the PAM market itself grows to encompass areas like Secrets Management and CIEM, as well as CyberArk's ventures into IAM. Citing the company's experienced management team and consistent execution track record, the firm anticipates sustained revenue growth and improving profitability for CyberArk.
The revised price target of $310 is based on approximately 13 times the enterprise value to sales (EV/S) on Canaccord Genuity's 2025 estimates.
The increase in the price target reflects a combination of the strong quarterly performance and a raised revenue multiple from 12x to 13x, due to the company's sustained achievement of Rule of 40+ metrics, even in a weaker macro environment where other peers are lowering their guidance.
In other recent news, CyberArk Software showcased an impressive performance in the second quarter, surpassing market expectations. The company reported a 28% year-over-year growth in total revenue, reaching $224.7 million.
Furthermore, CyberArk's subscription-based Annual Recurring Revenue (ARR) expanded by 50% year-over-year, contributing to a total ARR of $868 million. Following these developments, Baird raised the price target for CyberArk shares to $315 from $295, maintaining an Outperform rating.
As part of these recent developments, CyberArk's pending acquisition of Venafi is expected to bolster its capabilities in machine identity management. The acquisition is set to be immediately accretive to CyberArk's earnings, solidifying its leadership in the field. Additionally, the company's operating margin and free cash flow margins reached 10.6% and 19% respectively, reflecting efficient operations.
Investors should also note CyberArk's strong execution, expanding margins, and strategic vision for its platform, as highlighted by Baird's analysis. These factors establish the company as a sustainable Rule-of-40 entity, where the combined growth rate and profit margin exceed 40%, a benchmark for successful software companies.
InvestingPro Insights
InvestingPro data echoes Canaccord Genuity's positive outlook on CyberArk Software (NASDAQ:CYBR), with the company boasting a significant revenue growth of over 30% in the last twelve months as of Q2 2024. This growth is a testament to CyberArk's strong performance, even as it trades at a high Price / Book multiple of 12.97, which indicates market confidence in its asset value and future prospects.
Moreover, CyberArk's impressive gross profit margin of 80.62% during the same period underlines its efficiency and the high value of its cybersecurity solutions. This is particularly relevant as the company expands its portfolio into areas such as Cloud Infrastructure Entitlement Management (CIEM) and Identity and Access Management (IAM).
InvestingPro Tips reveal that CyberArk holds more cash than debt on its balance sheet and is expected to become profitable this year, which aligns with Canaccord Genuity's analysis predicting sustained revenue growth and improving profitability. Additionally, CyberArk has shown a high return over the last year, with a price total return of 83.84%, underscoring its strong market performance. For readers interested in a deeper dive into CyberArk's market position and potential, InvestingPro offers a further 10 tips on their platform.
These insights provide a more nuanced view of CyberArk's financial health and market standing, complementing Canaccord Genuity's raised price target and Buy rating. Investors looking to capitalize on CyberArk's strategic positioning in the PAM market may find these metrics and tips from InvestingPro valuable for making informed investment decisions.
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