Tenable well positioned in cybersecurity, but Qualys, Rapid7 closing gap: UBS

Amid the continued increase in spending on cybersecurity, investment firm UBS said the exposure management portion is likely to keep growing at a healthy clip, with expectations for mid-teens growth this year.

While that may be down from the past two years – 22% and 25% in 2021 and 2022 – companies like Tenable (NASDAQ:TENB), Qualys (NASDAQ:QLYS) and to some extent, Rapid7 (NASDAQ:RPD), are all well positioned to take advantage of the trend, according to investment firm UBS.

UBS analyst Roger Boyd, who initiated coverage on all three companies this week, said the enterprise exposure of Tenable (TENB) and Qualys (QLYS) – with their respective customer lists accounting for 60% and 46% of the Fortune 500, respectively – is a positive for the duo. Boyd added that infrastructure at these customers is usually “heterogeneous” and the risk, security operation parts of the organizations are more siloed.

Expansion efforts for virtual management may be “somewhat challenged” this year, as larger cybersecurity platforms expand their use cases.

But that’s where Tenable (TENB) is likely to benefit, both from a company and a stock perspective. Boyd said there is likely to be a 35% reduction in new customer billings this year and less than 110% in net revenue retention, all of which should help aid the company’s 13% current billings growth.

“Checks were most positive on TENB’s relative positioning in [vulnerability management] and pointed to prioritization and analytic capabilities as differentiators,” Boyd wrote in an investor note.

Boyd favors Tenable (TENB), given that it trades at 20.5 times enterprise value-to-free cash flow and looks “undervalued” for a company with high-teens revenue growth and free cash flow margins of at least 20%.

For Qualys (QLYS), Boyd sees the company gaining traction in the vulnerability management, detection and response space, allowing it to upsell to customers. That strength has allowed patch and asset management to become 10% of its last 12 month bookings, with the strength expected to continue as platform sales and ramping sales are a benefit in the second-half of the year.

However, recent turnover in its go-to-market executive ranks is a concern, while the stock looks “fairly priced,” Boyd added, as it trades at 1.1 times enterprise value-to-free cash flow for 2024.

Rapid7 (RPD) is a similar story to Qualys, in that the company probably deserves more credit than it gets, especially for its push into SecurityOps and a roughly 50% increase in average revenue per customer. However, it’s also facing increasing competition from endpoint and cloud security vendors, which Boyd believes could “disproportionally challenge” the company.

And with the stock trading at more than 24 times enterprise value-to-free cash flow and the company only revenue growing at 16%, Rapid7 (RPD) is “fairly priced,” especially when taking into account below average growth and profitability.

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