RBC Declares This Stock a ‘Top Mid-Cap Cybersecurity Idea,’ Initiates Coverage with Buy Rating

RBC Capital Markets has commenced research coverage of CyberArk Software Ltd, granting it an Outperform rating with a price target set at $328. Following this announcement, shares of CyberArk experienced an increase of over 1% on Friday.

RBC has recognized CyberArk as a leading mid-cap cybersecurity investment, citing various factors that are likely to support its growth. Key elements include the rising importance of identity-related spending in cybersecurity, opportunities for growth within the core Privileged Access Management (PAM) sector, and potential for new product cross-selling, specifically in Endpoint Privilege Manager (EPM), Access, and Secrets Management.

The analysis indicates that CyberArk is poised to sustain an organic growth rate exceeding 20% for the coming years, backed by a projected total addressable market of approximately $60 billion. The firm’s analysts see an opportunity for CyberArk to consolidate various segments of the identity market, particularly among mid and large enterprises, leveraging its persona-based selling model that targets workforce, IT, developers, and machine identities.

Additionally, RBC emphasized the strategic acquisition of Venafi by CyberArk, considering it could significantly enhance growth and profitability. Venafi, which reported an annual recurring revenue of around $150 million with a growth rate of over 20% prior to 2023, is expected to return to this growth trajectory as part of CyberArk, supported by numerous cross-selling opportunities arising from minimal customer overlap.

Lastly, analysts pointed out that CyberArk’s cash flow is a valuable yet often overlooked asset. Before its recent transition, the company boasted free cash flow margins of 31% in 2019. Although it may take some time for margins to exceed 30% again, projections for 2024 suggest a significant increase to a 16% free cash flow margin, up from 7% in 2023, with expectations for further acceleration beyond 2025.