Merrill Lynch's Top Networking and Security Picks for the Rest of 2017

Technology

Published: July 25, 2017 8:40 am

Last Updated: January 12, 2020 9:49 am

With earnings results pouring in this week, many of the top firms on Wall Street that we cover are starting to get their game plans ready for the rest of the year. While results for the most part have been solid, guidance has been so-so, which makes stock selection going forward critical, especially in a pricey market.

In a new research report, Merrill Lynch seems to be taking the right course for the rest of 2017. The analyst’s top networking and security picks are a combination of contrarian ideas, reduced expectations and companies that have product refresh catalysts. Six stocks make the cut and are rated Buy. All look like solid ideas for aggressive growth accounts.

Top Pick

Ericsson

Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) is the top pick at Merrill Lynch. This top European tech and telecom company offers aggressive investors the potential for big upside. It provides network equipment and software and services for network and business operations worldwide.

Its Networks segment delivers products and solutions for mobile access, internet protocol (IP) and transmission networks, core networks and cloud. This segment offers radio access solutions; IP routing and transport solutions; microwave and optical transmission solutions for mobile and fixed networks; IP multimedia subsystem solutions; a cloud platform that handles workloads for various clouds; and telecom, IT and commercial cloud services.

The company’s Global Services segment delivers managed services, including services for designing, building, operating and managing the day-to-day operations of the customer’s network or solutions; maintenance services; network sharing solutions; shared solutions; and managed services of IT environments, as well as provides broadcast and media services.

While the company missed earnings, the analysts are positive and said in a recent report:

Ericsson reported second quarter results below expectations; management also lowered its 2017 radio access network market outlook. Additional negatives include project adjustment risks, but management expects reductions to help margins, sees 12%+ operating margins beyond 2018. Reiterate Buy; trough valuation, room for margin improvement, attractive longer-term turnaround.

Investors receive a 1.07% dividend. The Merrill Lynch price target for the stock is $8.45, and the Wall Street consensus figure is $6.63. Shares closed trading Monday at $6.32.

Top Security Picks

Check Point Software Technologies

This remains one of the top tech stocks to buy on Wall Street for a security presence. Check Point Software Technologies Ltd. (NASDAQ: CHKP) is one of the best in helping customers protect against advanced persistent threats. The company is considered a worldwide leader in securing the internet, providing customers with uncompromised protection against all types of threats, reduces security complexity and lowering the total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology.

Many on Wall Street think that Checkpoint should see year-over-year accelerating growth in product licenses, particularly as the security firewall refresh appears to be in full-growth mode. The company reported solid second-quarter results, and the analysts said this:

Checkpoint reported better than expected, but the third quarter outlook for revenue and earnings-per-share is 3.5% below expectations. Lower guidance is attributable to the timing of a local holiday, which could push the recognition of some orders into the fourth. We believe the 7.2% decline in share price recently is an overreaction.

Merrill Lynch has a $120 price target, and the consensus target is $108.21. Shares closed Monday at $106.74.

FireEye

This stock was on fire a couple of years ago but was absolutely eviscerated after missing earnings numerous times. FireEye Inc. (NASDAQ: FEYE) has been mentioned over the years as a takeover target, and trading 85% below highs that were printed this time three years ago, it may indeed be on the radar.

The company provides cybersecurity solutions for detecting, preventing, analyzing and resolving cyberattacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information.

FireEye also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors. Its Threat Analytics Platform helps to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, and its Malware Analysis System helps to manually execute and inspect advanced malware, zero-day and other advanced cyberattacks embedded in files, email attachments and web objects.

The company reported solid first-quarter numbers in May and has rallied back smartly from lows printed in March.

The $18 Merrill Lynch price target compares with a consensus target of $15.16 and Monday’s close at $15.95.

Palo Alto Networks

This company was a momentum trader’s dream before crashing back to earth. Palo Alto Networks Inc. (NASDAQ: PANW) is helping to lead a new era in cybersecurity by protecting thousands of enterprise, government and service provider networks from cyber threats, and it boasts a staggering year-over-year billing growth. Unlike fragmented legacy products, its security platform safely enables business operations and delivers protection based on what matters most in today’s dynamic computing environments: applications, users and content.

Palo Alto Networks security platform has new features that were introduced to help security professionals overcome the distractions and time spent on problems caused by the overwhelming volume of alerts and manual processes associated with operating many discrete security products, and, instead, expand breach prevention capabilities and boost operational efficiency.

This company also posted better-than-expected fiscal third-quarter results in June. The analysts noted this:

Third quarter revenue of $432 million was $20 million better than expected, with most of the strength driven by product revenue upside. Products were $17 million higher than estimated, driven by improving sales execution & pent up demand for new firewalls. Reiterate our Buy as we believe sales execution issues are largely transitory and view management’s fourth quarter guide as likely conservative.

Merrill Lynch has set its price target at $170. The consensus price objective is $149.59, and shares closed Monday at $139.45.

Top Networking Picks

Commscope

This is a top networking idea at Merrill Lynch. Commscope Holding Co. Inc. (NASDAQ: COMM) is a leading provider of antennas, cabling connectors and other connectivity equipment for enterprise and service provider customers. The company is a market leader in its three segments: Wireless, Enterprise and Broadband.

Top Wall Street analysts feel that company will be a big winner in data center build-out and fiber to the home arenas. The project the company has a 35% or so share of the fiber connectivity market, and in the firm’s view, a meaningful share of design wins at major U.S. carriers and enterprise buildings.

While first-quarter results were solid, the guidance was disappointing. The analysts lowered estimates at the time and noted this:

Revenue and earnings guidance ranges were lower than expected. Indoor network and copper declines, some US wireless pauses, and manufacturing integration issues impacted the outlook. We lower our estimates and price objective, but demand recovery, new products, and improved execution should help the second half.

The Merrill Lynch price target is $41. The posted consensus target is $42.88. Shares closed Monday at $35.45.

Juniper Networks

This solid technology stock has been on a long roller-coaster ride for investors over the past two years. Juniper Networks Inc. (NYSE: JNPR) is a provider of high-performance network infrastructure to service providers and enterprises. Key products include IP-based routers for service provider core and edge networks, security solutions and high-end enterprise routing equipment. Juniper’s products support converged data, voice, video and wireless applications across extended networks.

The company recently appointed Bikash Koley as the new chief technology officer. Wall Street is impressed with the choice because his resume appears to fit well with Juniper’s forward-looking strategy of pivoting toward the cloud, faster growth and software. Coming from Google, and having also worked at Ciena, means he has an appreciation of optical networking, in addition to the cloud and how hyper-scale and web 2.0 companies are thinking.

Shareholders receive a 1.36% dividend. The Merrill Lynch price target is $35, and the consensus price objective is $31.21. Shares closed Monday at $29.46.

These six top stocks to buy offer technology exposure without huge momentum multiples in an expensive and tired bull market. These could very well be some of the best tech plays over the next year to 18 months.