Palo Alto (PANW) Stock Surges as FQ2 Results Reflect Robust Demand, JPMorgan Upgrades to Neutral as Risk/Reward is Now More Balanced
Shares of Palo Alto Networks (NASDAQ: PANW) surged more than 7% in premarket trading Wednesday after the company reported better-than-expected FQ2 financial results.
The cybersecurity company reported an adjusted EPS of $1.74, beating the consensus estimates of $1.65 per share and up from $1.55 reported in the year-ago period.
Revenue in the second quarter stood at $1.32 billion, up 30% YOY and compared to the analyst consensus of $1.28 per share.
“In Q2, our company continued to benefit from strength across our three security platforms, driven by strong cybersecurity demand, organizations architecting for hybrid work and growing their hyperscale cloud footprints,” said Nikesh Arora, chairman and CEO of Palo Alto Networks.
Product revenue came in at $308 million, up 21% YOY and above the consensus estimates of $290.7 million. Subscription and Support revenue was $1.01 billion in the period, up 32% YOY and above the estimated $990.2 million.
Palo Alto Networks reported billings of $1.61 billion in the second quarter, up 32% YOY and compared to the consensus estimates of $1.52 billion. R&D expenses were reported at $359 million, up 35%, and compared to the consensus estimates of $337.6 million.
For the current quarter, Palo Alto expects adjusted EPS in the range of $1.65 to $1.68, compared to the consensus estimates of $1.64 per share. The company estimates billings of $1.59 to $1.61 billion, compared to the analyst's expectations of $1.59 billion.
It also anticipates revenue in FQ3 to land between $1.35 billion and $1.37 billion, compared to the consensus estimates of $1.35 billion.
For the full-fiscal 2022, Palo Alto Networks expects EPS between $7.23 and $7.30, compared to the consensus estimates of $7.24. As for revenue estimates, Palo Alto Networks expects revenue in the range of $5.43 billion to $5.48 billion for the full year, compared to the analyst expectations of $5.39 billion.
JPMorgan analyst Sterling Auty upgraded PANW to Neutral from Underweight with a price target of $620.00 per share from the prior $600.00.
“The NGS ARR is showing consistent growth characteristics as it scales, and operational execution has thus far navigated the supply chain constraints to deliver better than anticipated product growth. PANW is one of the cybersecurity companies that is well positioned to compete for the cloud security opportunity. After the recent pullback, the risk- reward set up in the stock now appears more balanced, and so we are upgrading to a Neutral rating,” Auty said in a note.
Stifel analyst Adam Borg praised PANW for delivering “a strong and better-than-expected F2Q22 print”.
“With this strength broadly consistent with our checks, we continue to believe that Palo is well positioned across its Network, Cloud, and SecOps focus areas and that it has a number of drivers to sustain at-least low 20%+ top-line growth and operating margin and FCF expansion in coming years. More broadly, we continue to believe that Palo is well-positioned to be a natural consolidator of cybersecurity spend and that at 7x/20x CY23E EV/revenue and EV/FCF (below peers), valuation remains attractive,” Borg wrote in a memo.
By Senad Karaahmetovic | [email protected]