Stock of the Day

February 26, 2024

Palo Alto Networks (PANW)

$200.00
+$2.89 (+1.5%)
Market Cap: $133.57B

About Palo Alto Networks

Palo Alto Networks, Inc. provides cybersecurity solutions worldwide. The company offers firewall appliances and software; and Panorama, a security management solution for the global control of network security platform as a virtual or a physical appliance. It also provides subscription services covering the areas of threat prevention, malware and persistent threat, URL filtering, laptop and mobile device protection, DNS security, Internet of Things security, SaaS security API, and SaaS security inline, as well as threat intelligence, and data loss prevention. In addition, the company offers cloud security, secure access, security operations, and threat intelligence and security consulting; professional services, including architecture design and planning, implementation, configuration, and firewall migration; education services, such as certifications, as well as online and in-classroom training; and support services. It sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Palo Alto Networks, Inc. was incorporated in 2005 and is headquartered in Santa Clara, California.

Palo Alto Networks Bull Case

Here are some ways that investors could benefit from investing in Palo Alto Networks, Inc.:

  • The current stock price is around $194, reflecting a strong market interest and potential for growth.
  • Palo Alto Networks, Inc. reported a quarterly revenue increase of 15.3% year-over-year, indicating robust business performance and demand for its network security solutions.
  • Analysts have a positive outlook, with a majority rating the stock as a "buy" and an average price target significantly higher than the current price, suggesting potential upside.
  • The company has demonstrated strong earnings performance, exceeding consensus estimates for earnings per share, which can instill confidence in its financial health.
  • Institutional ownership is high, with nearly 80% of shares held by institutional investors, which often indicates a level of trust and stability in the company.

Palo Alto Networks Bear Case

Investors should be bearish about investing in Palo Alto Networks, Inc. for these reasons:

  • The stock has a high price-to-earnings (P/E) ratio, which may suggest that it is overvalued compared to its earnings, potentially leading to price corrections.
  • Insider selling has been notable, with significant shares sold recently, which could raise concerns about the executives' confidence in the company's future performance.
  • Market volatility is a factor, as indicated by the stock's beta of 1.02, suggesting that it may experience fluctuations in price relative to the overall market.
  • Despite positive revenue growth, the company faces intense competition in the cybersecurity space, which could impact its market share and profitability.
  • Recent upgrades and target price increases from analysts may lead to inflated expectations, which could result in disappointment if the company fails to meet these targets.

Palo Alto Networks aims at cyber security leadership

Written By Thomas Hughes on 2/21/2024

Palo Alto Networks stock price

Palo Alto Networks (NASDAQ: PANW) significantly shifted, causing the entire cyber security universe to move lower. The shift is toward platformization. The goal is to attract more long-term business by consolidating existing services and products into a signal platform and enticing them with freebies. Already the cybersecurity market leader, Palo Alto Networks wants to ensure it retains its position. 

However, the impact of the news is far-reaching. It has shares of Palo Alto and other cybersecurity leaders down double-digits, and they are likely to stay down for the foreseeable future. 

The reason for the share price implosions is revenue and earnings. The impact to Palo Alto will last twelve to eighteen months and trim 5.6% off of this year’s expected billing. The impact on the industry is a need to offset market share losses Palo Alto Network’s move may cause, potentially resulting in a significant downshift in revenue and earnings expectations for all cyber stocks.

Analysts’ sentiment shifts for Palo Alto Networks

The analysts have supported Palo Alto Networks, but the sentiment is shifting along with the business change.  While some have come out to defend the move and the stock’s long-term outlook, more have come out to downgrade their rating or lower their price targets. 

Among the most prominent are downgrades to Hold from Buy or Outperform equivalents from Piper Sandler, Rosenblatt Securities, and Loop Capital. The takeaway from their notes is that a high degree of uncertainty has entered the picture, results will be hampered for the foreseeable future, and both raise issues with valuation and price multiples. Trading at 65X earnings, it is a highly valued stock to have its growth slowing and the outlook trimmed. 

Palo Alto Networks has a solid quarter, reaffirms profit guidance

Palo Alto Networks had a solid quarter in FQ2, showing strength across its three platforms. The company reported $1.98 billion in net revenue, a gain of 19.3% over last year. The revenue outpaced the Marketbeat.com consensus by a slim margin and is compounded by solid margins. Segmentally, Products grew by 10.7%, led by a 21.6% increase in Services. The remaining performance obligation, a leading indicator for revenue growth, increased by 22%. 

The margin news is mixed, but gross margin improvement offset increased costs to leave the adjusted and GAAP earnings above forecast. Adjusted earnings grew 40% YOY to $1.46 per share, outpacing consensus by $0.16. The strength should have led management to increase the guidance, but the shift in business strategy offset it. 

Guidance is good, albeit tainted by uncertainty. The company reaffirmed its outlook for adjusted EPS, which has a midpoint slightly below the consensus estimate. The risk for investors is slowing organic growth will be compounded by the strategy to shift, resulting in underperformance in the back half of the fiscal year. 

The technical outlook: Palo Alto Networks is heading lower 

Palo Alto Networks business may not feel the impact feared by the market, but it won’t help the share price. The stock is down more than 25% in a single day, creating a solid engulfing pattern that consumes two and half months of trading. This signal creates a significant overhang of investment dollars, now showing losses. It will take a substantial shift in market sentiment to overcome the overhang, setting the stock price up for deeper declines. The next best target for solid support is near $230 or about 15% additional downside. 

The factor which will support the price is the balance sheet. The company is in a strong financial position and can afford to invest in its future. Critical details at the end of Q2 include a significant increase in cash, inventory, and current and total assets offset a slight increase in liability. The result is that shareholder equity more than doubled. 

PANW stock chart

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