MCFE - McAfee vs. Proofpoint: Which Cybersecurity Stock is a Better Buy?

McAfee Corp. (MCFE) and Proofpoint, Inc. (PFPT) are two prominent computer software security providers operating in the United States and internationally. MCFE provides integrated security and trust solutions to consumers, businesses, and governments. PFPT offers protection against malicious attachments, polymorphic threats, zero-day exploits, and other cyber penetration tactics by providing email security, cloud security, and other threat protection solutions.

With organizations seeking to create more digital customer experiences, the need now to protect valuable client data has increased exponentially. In fact, the increase in virtual activities, such as remote working and online shopping amid this digital revolution, has made business networks a breeding ground for cyberattacks.

Since most pandemic-driven trends like remote working and digital payments are expected to continue even after the pandemic has departed, enterprises are looking to create secure environments that are protected against data breaches. We believe that this need should keep fueling the demand for privacy and security solutions offered by leading software security companies MCFE and PFPT.

Click here to checkout our Cybersecurity Industry Report for 2021

In terms of year-to-date performance, MCFE is the clear winner with 47.1% gains versus PFPT’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

This month, MCFE entered  a definitive agreement to sell its Enterprise business to Symphony Technology Group in an all-cash transaction for $4 billion. This move should allow the company to focus solely  on its  consumer business and drive its business strategy to establish itself as a leader in personal security for consumers.

In February, the company collaborated with LG to pre-install a 30-day free trial of McAfee security on LG PCs worldwide. This should enable MCFE to provide its consumers with t security tools to secure their digital lives and protect their personal information.

And this month, PFPT’s Board of Directors appointed Elizabeth Rafael as a new independent director. Her solid financial background should allow the company to scale its  business further to drive long-term growth and profitability.

Last month, the company entered an agreement to acquire InteliSecure, Inc. to strengthen PFPT’s cloud-based security platform.  With businesses continuing to work in a cloud-first, remote-oriented environment, this acquisition should help PFPT  meet strong  customer demand and achieve top-line growth.

Recent Financial Results

In the fourth quarter, ended December 26, 2020, MCFE’s net revenue grew 13.9% year-over-year to $777 million. Its consumer revenue was $426 million, reflecting 23% growth year-over-year. MCFE’s gross profit was $521 million, representing a 10.6% increase from the year-ago value. Its  enterprise revenue grew 5% from the prior-year quarter to $351 million over this period.

PFPT’s total revenue has increased 13% year-over-year to $275.13 million in the fourth quarter ended December 31 Its hardware and services revenue rose 21.4% from its  year-ago value to $3.72 million. The company’s non-GAAP gross margin was 81%, compared to 80% for the fourth quarter of 2019. However, PFPT  reported a net loss of $35.1 million and a loss per share of $0.61 over this period.

Past and Expected Financial Performance

MCFE’s revenue has grown  at a CAGR of 11.9% over the past three years.

Analysts expect the company’s revenue to increase 4.1% in the current year and 4.4% next year. MCFE’s EPS is expected to grow 16.1% next year and at a rate of 12.5% per annum over the next five years.

In comparison,  the CAGR of PFPT’s revenue has been 26.4% over the past three  years.

PFPT’s revenue is expected to increase 14.2% in fiscal 2021 and 17.2% in 2022. The Street expects the company’s EPS to increase 27.2% next year. Also,  its EPS is expected to grow at a rate 23.2% over the next five years.

Profitability      

MCFE’s trailing-12-month revenue is more than two times  PFPT’s   But PFPT is more profitable with a gross profit margin of 73.8% versus MCFE’s 69.9%.

However, MCFE’s ROE and ROA of 14.8% and 2%, respectively, compare favorably with PFPT’s negative returns.

Valuation

In terms of forward PEG, PFPT is currently trading at 2.68x, 104.5% higher than MCFE, which is currently trading at 1.31x. Also, its trailing-12-month ev/sales of 7.06x is 60.1% higher than MCFE’s 4.41x.

So, MCFE is the more affordable stock.

POWR Ratings

MCFE has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, PFPT has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Both MCFE and PFPT have a Momentum grade of C, which is consistent with their year-to-date price returns.

Also, in terms of Growth Grade, both MCFE and PFPT have a C, which is consistent with their earnings and revenue growth.

MCFE has a Sentiment Grade of B, which is in sync with the analysts’ expectations about its earnings and revenue growth. In comparison, PFPT has a Sentiment Grade of C.

Of the 24 stocks in the C-rated Software - Security industry, MCFE is ranked #1, while PFPT is ranked #9.

In addition to what we’ve  stated above, our POWR Ratings system also rates both MCFE and PFPT for Quality, Stability, and Value. Get the ratings for MCFE here. Also, click here to see the additional POWR Ratings for PFPT.

The Winner

While both MCFE and PFPT are good long-term investments considering their market leading capabilities and continued expansion, MCFE appears to be a better buy based on the factors discussed here. Even though PFPT has witnessed solid momentum across its core security products, MCFE’s superior financials, higher profitability, and relative undervaluation make it a better investment option.

Our research shows that the odds of success increase if one  bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Software - Security industry, click here.

Click here to checkout our Cybersecurity Industry Report for 2021

MCFE shares were trading at $23.27 per share on Monday morning, down $1.28 (-5.21%). Year-to-date, MCFE has gained 39.42%, versus a 4.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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