Palo Alto Networks (PANW) Gains After Beating Q3 Views, Analyst Sees 'Bargain Valuation'
Shares of Palo Alto Networks (NASDAQ: PANW) are trading about 6% higher in early trading Friday after the company reported healthier-than-expected Q3 earnings and guidance.
The security hardware and software company posted adjusted earnings of $1.38 per share, compared to $1.28 per share expected by analysts, according to Refinitiv. Revenue came in at $1.07 billion, up from the expected $1.06 billion.
On an annualized basis, revenue climbed 24% in the second quarter which ended on April 30, and up 25% from the previous quarter. During the period, Palo Alto Networks bought a cloud security company Bridgecrew for $156 million.
"The work-from-home shift earlier in the year and recent cybersecurity issues have increased the focus on security. Coupled with good execution, this has driven great strength across our business, with Q3 billings growth accelerating to 27% year over year. In particular, we saw a number of customers make large commitments to Palo Alto Networks across our three major platforms," said Nikesh Arora, chairman and CEO of Palo Alto Networks.
As for the fiscal fourth quarter, the company said it expects adjusted earnings to range between $1.42 and $1.44 per share, and revenue in the range of $1.165 billion to $1.175 billion, compared to analysts’ estimates of $1.42 in adjusted earnings per share and $1.16 billion in revenue.
"We are pleased to be raising our guidance for fiscal year 2021 as we see these trends continuing into our fiscal fourth quarter, bolstering our confidence in our pipeline."
For Raymond James analyst Adam Tindle, FQ3 results are “confirmatory evidence” that justifies the recent upgrade to ‘Outperform.’ The analyst raised the price target to $410.00 per share from $400.00 per share on the stock.
“Our recent upgrade was predicated upon expert webinars (replays available), and channel checks that were indicating significant increases in deal sizes, improved functionality across the platform, and our view of inherent operating leverage as this scales. We learned 1) multiple 8-figure deals occurred in the quarter, and the largest SASE deal ever was just signed, 2) active $1M+ customers (and y/y growth of this cohort) are both at multi-year highs, 3) new NG ARR (platform proxy) accelerated q/q, and 4) FCF margin was raised ~100 bp to 30%,” the analyst said in a memo.
“In short, we saw a lot of evidence to reinforce our thesis, the business is clearly showing momentum in the right areas, and we see the stock pushing to the $400s as the benefit from products like Prisma SD-WAN and Prisma Access 2.0 should only improve from here given a March '21 release and typical 4-7 mo sales cycle.”
For Jefferies analyst Brent Thill, PANW remains “one of our favorite security stocks trading at a discount.” He says the stock trades at a “bargain valuation.”
“We believe that the leader in network security remains well-positioned to meet customer needs in a hybrid world given formidable investments in cloud security and focus on go-to-market,” Thill said in a memo.
He also raised the price target to $420.00 per share from $400.00 per share on the Buy-rated PANW.