Top Cyber Security Stock Plays

The definition of cyber security is constantly evolving, but the most common definition relates to the protection applied to computers and networks and the information they store and relay. Over the last few years there has been no lack of media reports regarding cyber break-ins, identity theft and more — all going a long way to highlight the problem, but representing only the tip of the iceberg.

The crux of the threat is that our reliance on networks grows more interconnected every day from cell phones, email, credit cards, social security numbers and more.  Ever more important, the electric grid, stock exchanges, banks, municipalities and the Pentagon are dependent on computer networks, making the U.S. vulnerable.

Obviously, security in these realms is an important and growing industry. Here we take a look at EarlyBird Capital analyst Alex Hamilton's list of the companies that stand to gain the most from the growing demand for cyber security — companies that could become very profitable for investors.

Posted 16 May, 2011

CNBC's Code Wars: America's Cyber Threat 

Ticker: BAH
No Recommendation*

Booz Allen, Hamilton IPO’d Nov. 18, 2010 at $17, and is a leading provider of management and technology consulting services to the U.S. government in the defense, intelligence and civil markets. In their role, BAH helps clients develop and improve cyber capabilities.

*Hamilton and EarlyBird do not cover BAH

Ticker: BA
Recommendation: BUY, $90 Target

Boeing is a leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. Additionally, BA designs and manufactures rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. The company also provides numerous military and commercial airline support services.

Hamilton says that cyber is a small component of BA’s overall business, but a focus nonetheless, especially with the recent acquisition of Argon ST (completed August 2010). Management estimates that cyber activities account for about $1 billion in revenue.

"Clearly we do not consider BA a cyber pure play, but is a significant player in cyber none-the-less, within our universe of coverage," Hamilton says.

Ticker: CACI
Recommendation: BUY, $66 Target

CACI provides information systems, and technology and professional services to the U.S. government, agencies of other governments, state and local governments, and commercial enterprises in North America and internationally.

"This is an example of a name where cyber runs through most of everything the company does," Hamilton says.

Ticker: CSC
No Recommendation*
 
Computer Sciences Corp. offers an array of IT services to aerospace, defense and many other industries. Inherent in the business is helping clients with cyber strategy.

*Hamilton and EarlyBird do not cover CSC

Ticker: DRCO
Recommendation: BUY, $17 Target

Dynamics Research provides management consulting, engineering, technical, and information technology services and products to federal and state governments.  Cyber is expected to account for about 4 percent of 2011E revenue, or about $11 million, Hamilton says.

Ticker: GD
No Recommendation*

General Dynamics offers a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; military and commercial shipbuilding; and communications and information technology. Cyber appeared to represent about $11.6 billion of 2010 revenue, or about 35 percent of total revenues.

*Hamilton and EarlyBird do not cover GD

Ticker: INTC
No Recommendation*

Intel is the world’s largest semiconductor chip maker, but is on Hamilton's list for its $7.7 billion acquisition of McAfee.

for perspective, INTC’s 2010 revenue (excluding McAffee) was $43.6 billion, and in 2009 (last full year before acquisition McAfee’s revenues were $1.9 billion). 

McAfee is a provider of security products and services that help secure systems and networks. McAfee’s offerings include endpoint security products, system security products, consumer security products, network security products, and risk and compliance products.

"We believe that this is more of a commercial use of cyber, but cyber nonetheless," Hamilton says.

*Hamilton and EarlyBird do not cover INTC

Ticker: KEYW

No Recommendation*

This recently IPO’d ($10, Sept. 30, 2010) company provides cyber security products to defense, intelligence and national security agencies. Current customers include: the National Security Agency, other intelligence agencies, the Department of Defense (including major agencies and branches within the Department of Defense) and other federal defense and law enforcement agencies. 

With revenue of about $108 million in 2010, this is one of the smaller players, but most, if not all of that revenue is related to pure cyber activities.

*Hamilton and EarlyBird do not cover KEYW

Ticker: LMT
No Recommendation*

This global security company is principally engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems.  LMT also provides a broad range of management, engineering, technical, scientific, logistic and information services.  Cyber activities represent about 22 percent of 2010 sales, or about $10 billion.

*Hamilton and EarlyBird do not cover LMT

Ticker: MANT
Recommendation: BUY, $60 Target
 
ManTech makes products for national security programs for the  intelligence community; departments of Defense, State and Homeland  Security; the Department of Justice and the Federal Bureau of  Investigation; the space community; the National Oceanic and Atmospheric Administration; and other U.S. federal government customers.

MANT’s expertise includes command, control, computers, communications, intelligence, surveillance and reconnaissance (C4ISR) lifecycle support, cyber security, global logistics support, intelligence/counter-intelligence support, information technology modernization and sustainment, systems engineering, and test and evaluation.

Cyber here runs less than 10 percent of total revenue, or about $200 million per year. 

Ticker: NCI
Recommendation: BUY, $27.00 Target

NCI provides information technology, engineering, logistics, and professional services and products to federal government agencies.

"This is an example of a name where cyber runs through most of everything the company does," Hamilton says.

Ticker: NOC
No Recommendation*

Northrop Grumman sells products  in aerospace, electronics, information systems and technical services. Cyber accounted for roughly 24 percent of 2010A revenues, or about $8.4 billion.

*Hamilton and EarlyBird do not cover NOC

Ticker: SAI
Recommendation: HOLD

SAIC provides scientific, engineering, systems integration and technical services and products to various branches of the U.S. military, agencies of the U.S. Department of Defense, the intelligence community, the U.S. Department of Homeland Security and the other U.S. government civil agencies, state and local government agencies, foreign governments, and customers in select commercial markets.

"SAI estimates cyber work runs at about $750 million to $1.5 billion of annual revenues," Hamilton says.

Ticker: SRX
Recommendation: HOLD

SRA International Provides technology and consulting services to national security, civil government, and global health sectors in the United States and internationally.

SRA is in the process of being taken private by Providence Equity Partners, "implying we will see this name again in some shape in about 3-5 years," Hamilton says. "Cyber revenue is hard to measure as it is such a large component of most contracts, but we estimate about 10-15 percent of revenues are cyber, or about, or about $270 million."

Ticker: SYMCNo Recommendation*

Symantecis sells security, storage, and systems management products and services designed to help businesses and consumers secure and manage their information.

*Hamilton and EarlyBird do not cover SYMC

CNBC goes inside a 21st century war in cyber space where national security, the economy and critical infrastructure are at risk. In a world without borders, do we have the defenses to keep us safe?

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• Your Best Cyber Security Investments: Take a Deeper Dive with Alex Hamilton