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Tech. Sgt. Noe Kaur, a cyber-defense supervisor with the 1st Combat Communications Squadron, launches cyberattacks as part of an exercise at the US Air Forces in Europe Regional Training Center at Ramstein Air Base in Germany, March 8, 2019.

  • Palo Alto Networks stock could surge 22% from increased government spending on cybersecurity, Wedbush said in a Sunday note.
  • Analysts said internal checks on spending are tracking higher after recent high-profile attacks.
  • "We believe federal cybersecurity spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022," Wedbush said.
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High-profile cyber attacks against Solarwinds and Colonial Pipeline have ignited increased spending in cybersecurity that is set to benefit Palo Alto Networks stock, according to a Sunday note from Wedbush.

Wedbush raised its price target on Palo Alto Networks to $600, representing potential upside of 22% from Friday's close. The investment firm cited internal checks on cybersecurity spending that are tracking strong for the third quarter.

"Our September quarter checks have been robust for the cyber security space as deal flow is clearly accelerating into year-end on the digital transformation shift among enterprises and governments," Wedbush explained.

Much of that spending is being driven by the government, as civilian and defense agencies "are laser focused on protecting data/endpoints/infrastructure" amid an ongoing surge in cyber attacks.

"We believe federal cyber security spending is tracking to be up 20% to 25% year-over-year for 2021 with consistent growth into 2022 as the Biden cyber security standards and recent high profile attacks are accelerating larger deals," Wedbush said.

Deal activity for Palo Alto Networks is tracking ahead of Wedbush's expectations with momentum building into year-end, according to the note. And some of that business is coming from the private sector, as executive decision makers green light more cybersecurity spending in hopes of not becoming a news headline in a future attack.

Growth from the private sector should continue as a shift to the cloud continues. "We believe there is a $200 billion growth opportunity in cloud security alone 'up for grabs' over the next few years for those vendors that have the solution sets to protect critical cloud deployments," Wedbush said.

The positive internal spending checks and a strong growth outlook give Wedbush "high conviction" in owning secular cybersecurity stocks like Palo Alto Networks. Other cyber security stocks Wedbush is bullish on includes Tenable and CyberArk.

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