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Wells Fargo Upgrades Palo Alto Networks (PANW) to Outperform

February 3, 2014 8:38 AM EST Send to a Friend
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Price: $81.49 -0.32%

Rating Summary:
    24 Buy, 7 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 23 | Down: 38 | New: 43
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Wells Fargo upgraded Palo Alto Networks (NYSE: PANW) from Market Perform to Outperform with a price target of $75-$81 (from $53-$56). Analyst Gray Powell thinks positive results from litigation will provide a catalyst.

"We are upgrading PANW to Outperform due to our increased confidence in the company's fundamental outlook and what we view as a favorable risk reward profile stemming from concerns on the JNPR lawsuit. While the JNPR litigation has the potential to create volatility and drag on for months or years, after talking with a patent attorney, we are fairly confident that in a reasonably bad case scenario, PANW would only pay about a $45MM 1x settlement and a 4% royalty fee going forward. In this event, PANW would still trade at only 20x 2015E FCF - which we think is an attractive multiple for a company with 30%+ revenue growth in the security space. As a result, we see continued upside potential in the stock and believes PANW merits an Outperform rating," aid Powell.

"While legal matters are very hard to predict and can drag on for months/years, we think it ultimately makes sense (for both sides) to settle. Lost patent suites usually result in a royalty fee of 1% - 5%. Thus, we see a theoretical 4% royalty as a reasonably bad case scenario for PANW. We are less concerned on triple damages as the bar to improve willful infringement is very high. We think the possibility of an injunction poses the biggest threat, but again, our best guess is that it is unlikely or at the very least can be avoided in a worst case scenario," he added.

For an analyst ratings summary and ratings history on Palo Alto Networks click here. For more ratings news on Palo Alto Networks click here.

Shares of Palo Alto Networks closed at $59.45 yesterday.




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