Tenable leads cybersecurity stocks lower after BTIG downgrade; Fortinet upgraded

Tenable (NASDAQ:TENB) was among the largest declining cybersecurity stocks on Monday after investment firm BTIG downgraded the company on worries that its core vulnerability management target market is slowing at a “faster-than-expected pace.”

Analyst Gray Powell lowered his rating on Tenable (TENB) shares to neutral from buy, noting that while BTIG is bullish on the company’s moves into new products, it may not be enough to boost revenue.

“While we remain bullish on some of [Tenable’s] new product initiatives, we do not think they are big enough to offset this core market deceleration,” Powell wrote in a note to clients. Powell lowered his billings growth estimate to 17% year-over-year in 2023, down from 20% previously.

Tenable (TENB) shares fell more than 9% to $30.77 in mid-afternoon trading. Other cybersecurity stocks fell in sympathy, including Zscaler (ZS), Palo Alto Networks (NASDAQ:PANW), Crowdstrike (CRWD) and CyberArk Software (CYBR), all of which declined 5% or more.

Subsequently, Fortinet (NASDAQ:FTNT) bucked the trend after being upgraded by Morgan Stanley, with the firm calling it an “underappreciated 30% [free cash flow] compounder.”

Analyst Hamza Fodderwala raise his rating on Fortinet (FTNT) to overweight from equal-weight, pointing out that security demand is “durable” even amid the uncertain macroeconomic environment.

“While investors are concerned with the cyclical nature of the firewall business, we believe this materially underestimates Fortinet’s secular growth drivers (SD-WAN, OT Security), accelerating share gain and opportunity to consolidate [greater than] $100 billion in annual market spend across security and networking,” Fodderwala wrote in a note to clients.

The analyst added that recent checks indicate “durable” demand and a large backlog exiting 2022 and Fortinet (FTNT) should at least a generate 20% top-line compound annual growth rate over the next five years, along with 30% compound annual growth rate in free cash flow.

Fortinet (FTNT) shares declined fractionally to $51.28 in mid-day trading.

Late last month, Wedbush Securities said Tenable (TENB) and several other software companies would likely see a benefit from increased spending by the U.S. government on cybersecurity.