Morning Trade for May 12th, 2021

Stocks moved lower this morning in early trading, one day after the Dow suffered its worst drop since February.  Inflation fears were validated by a spiking Consumer Price Index.  Inflation has accelerated at its fastest pace since 2008 with the CPI spiking 4.2% from a year ago.  The monthly gain was 0.8%, versus the expected 0.2%. 

President Biden wants to rebuild American infrastructure, but what about protecting the infrastructure we already have, like the cyber attacked Colonial Pipeline?

Our trade alert for today highlights a cybersecurity firm that solves the number one cyberattack vector – email.  

Software growth stocks in general have struggled in 2021. Cybersecurity stocks have lagged the broader market and software.  But the Colonial Pipeline incident could provide a lift, said RBC Capital analyst Matthew Hedberg in a report.

“Critical infrastructure has seen a number of cyberattacks recently with such threats having the potential for widespread disruption and national security implications,” said Hedberg.  “Given the stakes, it comes as no surprise that we expect cyberattacks to continue, which could force the public and private sector to re-evaluate and likely increase cybersecurity spending.”

Continue reading to find out which cybersecurity stock our team recommends in light of looming threats.  

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Mimecast Limited (MIME) offers cloud security and risk management services for corporate information, serving nearly 40,000 organizations globally.  Mimecast built their signature scalable design ideology to solve the number one cyberattack vector – email.  The company offers email management services that protect the large and small organizations against spam, viruses, malware, emerging threats and other challenges.    

The London-based company recently announced financial results for the fourth fiscal quarter and fiscal year ended March 31, 2021.  Earnings, adjusted for one-time gains and costs, came to $0.28 per share, which beat Wall Street Estimates by $0.05.  The cloud security services provider posted revenue of $133.9 million in the period, which also beat Street forecasts.  Five analysts surveyed by Zacks expected $131.1 million.  For the year, the company reported net income of $29.7 million, or 45 cents per share, swinging to a profit in the period.  Revenue was reported as $501.4 million.

Peter Bauer, chief executive officer of Mimecast, said, “We delivered solid results against what remains a challenging macro backdrop, which speaks to the durability of our business model, our differentiated platform, and our focused execution against our three-pronged strategy. We are staying close to our customers, continuing to strengthen our go-to-market teams and strategies, and innovating on and expanding our platform to anticipate the evolving threat landscape.”

Mr. Bauer continued, “Our targeted strategic growth initiatives are beginning to take hold. We believe that with continued focused execution, as economies in our markets rebound, we will reaccelerate top-line growth over time. At the same time, we continue to drive increasingly strong free cash flow and meaningful margin expansion.”

Mimecast also provided guidance for the first quarter 2022 and fiscal year 2022.  For the current quarter ending in July, Mimecast said it expects revenue in the range of $137.2 million to $138.6 million.  The company expects full-year revenue in the range of $569.7 million to $579.7 million, which represents a nearly 27% increase.  

The pros on Wall Street are largely bullish on MIME stock.  Of 16 analysts polled, 12 rate the stock a Buy, 3 rate is Hold and only 1 analyst calls MIME a Sell.  The current average price target among analysts offering recommendations is $55.56, which represents a more than 20% upside for MIME share price. 

 Mimecast, like most growth software stocks, is down substantially YTD.  The mid-cap stock has fallen 24% since the beginning of the year.  With the growing threat of ransomware attacks, companies are beefing up their cybersecurity.  Mimecast seems set to gain as one of the top cybersecurity firms tackling this looming threat.