Needham & Company Bullish on Palo Alto Networks (PANW) Into Analyst Day

Palo Alto Networks (NYSE: PANW) will be holding its analyst day on April 4th. Needham & Company analyst, Scott Zeller, thinks investors should continue buying the stock for two reasons (a) continued spending by customers on “start-over” projects where PANW is the new platform for security, and (b) expectation that customers may migrate from “point solutions” towards PANW, as the IT security spending mega-cycle spending cycle slows and customers rationalize purchases.

IT spending on network security remains strong – but only for the chosen few. Palo Alto Networks has maintained its strong y/y billings because of “do-overs” at companies who are throwing in the towel on legacy solutions, such as CSCO or JNPR firewalls.

Two key questions for analyst day:

1) Color on TRAPS. Detail on the revenue contribution of “Traps” (endpoint solution, sold as subscription) has been sparse, but positive directionally. Management is saying that Traps is enabling Palo Alto to compete for larger deals, which cover from the endpoint to the core of the network.

2) Will margin expansion continue? Palo Alto has demonstrated that its revenue growth strategy (and big S&M spend, nearly 47-48% of revenue) can actually translate to operating leverage. PANW’s operating margins have climbed from 8.4% in FY14 to 12.9% in FY15, and were nearly 17% in the JanQ.

No change to Buy rating or $171 target based on 8x EV/FY17 revenue.

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 $161.99 yesterday.

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