The news that financial giants like Citi had been hit in a multi-year hacking scheme probably didn’t surprise anyone. However, it shows that the United States needs to get serious about this threat. That should boost specialists like Radware Ltd. (NASDAQ:RDWR) and Fortinet Inc (NASDAQ:FTNT), but also military players like Lockheed Martin Corporation (NYSE:LMT).
The current round of companies hit by hacking includes Citi, Chase, Automated Data Processing, PayPal, TD Ameritrade, and TIAA-CREF. That’s a collection of some of the largest and most important financial-related companies around. In addition, according to the LA Times, the U.S. Defense Department’s Defense Finance and Accounting Service was also hit.
Although this scheme appears to have been about money, it’s only one of many large scale incursions. All of the cyber attacks taking place aren’t as “innocent” as this one.
A Notable Buy
Attacks like this one help explain why Cisco just agreed to buy Sourcefire, Inc. (NASDAQ:FIRE) for $2.7 billion, a nearly 30% premium. Sourcefire makes physical devices that monitor networks for security threats. Its most recent offerings specifically look for malware on networks and in mobile settings. That will be a nice addition for Cisco, which had fallen behind in the computer protection space.
Although Sourcefire, Inc. (NASDAQ:FIRE)’s top line has been growing steadily for years, shareholders should probably sell now to lock in the quick merger gain. There’s more downside risk of the deal falling apart than upside potential at this point.
Cisco, meanwhile, should quickly become a more competitive player in an increasingly important segment of the market. Although sales picked up after dipping in 2009, earnings and profit margins have been more varied. And the shares haven’t really gone anywhere since the 2000 tech bust.
The Sourcefire, Inc. (NASDAQ:FIRE) deal isn’t going to change Cisco’s business overnight, but it is a step in the right direction and improves the company’s position in an increasingly important segment. Growth and income investors should take a look at this 2.6% yielder, noting that its price to earnings ratio of about 15 is still a little below its five year average.
More to Come?
Radware Ltd. (NASDAQ:RDWR) and Fortinet Inc (NASDAQ:FTNT) are two other players in the space that could get scooped up. Radware’s focus is on denial of service attacks, and Fortinet provides an “all-in-one” cyber protection system called FortiGate. Fortinet is about twice the size of Sourcefire, Inc. (NASDAQ:FIRE), and Radware is about one-fifth the size of Fortinet.
Both companies saw top line weakness in the first quarter take their shares lower. That, however, comes after years of solid sales growth. It’s likely that sales will again push higher in the coming quarters and years as cyber attacks become more and more prevalent and destructive.
Either of these companies could find themselves an acquisition target, though Radware Ltd. (NASDAQ:RDWR) would be the easier of the two to digest. Although sales have grown steadily over the past decade, the top line was flat year over year in the first and second quarters. Earnings, meanwhile, were down about 35% or so year over year in each quarter, too. Still, Radware could be a good buy for aggressive investors since the shares are still trading about where they were after the first quarter earnings announcement.
Lockheed Martin Corporation (NYSE:LMT), meanwhile, has been providing IT services to the federal government for nearly two decades. It’s partnered with the Department of Defense Cyber Crime Center, and its Wireless Cyber Security Center allows for the safe testing of “wireless communications systems in a classified environment.” Clearly this military industrial giant is well situated for the cyber war.