At times, analyst change-ups on the stocks they cover can fall victim to poor timing. Such was the case with a major bank's revised take on up-and-coming cybersecurity company SentinelOne (S 1.70%). Just after news of the bank's recommendation upgrade and price target raise, another prominent cybersecurity business published dispiriting quarterly results.
This awkward timing raises the enticing possibility, however, that some titles in the sector might become undervalued.
Bank of America becomes a SentinelOne bull
The investment firm making its SentinelOne revision was Bank of America, in the person of analyst Tal Liani. On Valentine's Day, Liani switched his recommendation from neutral to buy. This was accompanied by a significant lift in price target, to $35 per share from Liani's preceding $26.50.
While acknowledging the crowded cybersecurity sector, Liani waxed bullish about SentinelOne's prospects in a fresh research note. He shined a light particularly on the company's ability to scare up free cash flow (FCF) and build up annual recurring revenue (ARR), the most prized form of sales as it is relatively consistent.
"Though competition remains intense, our more positive view is driven by our expectations for the near-term pathway to profitability and FCF generation, reaccelerating net new ARR growth, long-term industry tailwinds and improving market conditions," the pundit wrote.
A solid niche in a hot industry
Liani has a point that the cybersecurity market is hotly competitive. However, SentinelOne has a niche in endpoint -- i.e. connected device -- security. On top of that, it's actively harnessing artificial intelligence (AI) to give its capabilities a serious boost.
So the company is a determined specialist with a compelling product, and it operates in a field that will only see more demand given the ever-present threat of cybercrime. The Bank of America's new evaluation of SentinelOne's potential seems entirely on the money.
