Wolfe Research Reiterates Outperform Rating on Palo Alto Networks (PANW)
Wolfe Research analyst Joshua Tilton reiterated an Outperform rating and $385.00 price target on Palo Alto Networks (NASDAQ: PANW).
The analyst comments "Revenue and NGS ARR stood out, growing 12% and 43% Y/Y, and coming in 1.3% and 3.7% ahead of consensus, respectively. Total Billings came in ~$47M ahead of guidance, but ST Billings grew <10% Y/Y. However, Recurring ST Billings grew 13% Y/Y, which we think is a better metric as hardware becomes a smaller portion business. Operating Margin of 17% was 1pp ahead of consensus, while FCF was in-line. Management is no longer guiding to Billings but does expect FY25 growth to be 12% (in-line with consensus) assuming the mix between PAN-FS and Billings programs is unchanged, and will now guide to RPO growth which is expected to remain at the 20% level in 1Q/FY25 (2%/3% below consensus expectations). While aggressive at first glance, contract duration (which is not disclosed) could meaningfully impact this metric, and we think investors will put more emphasis on Revenue and NGS ARR going forward. We view FY25 guidance on both metrics (+14% & +29% Y/Y) as achievable as the former implies negative Product Revenue growth (we model +1.6% Y/Y) assuming the Recurring Revenue (Sub & Support) coverage ratio holds steady in FY25, and the latter implies NNARR growth of -3% Y/Y (reach out for a walkthrough on our detailed ARR model). FCF guidance also looks appropriate on the surface as it implies a FCF conversion ratio of 1.35x, below the actual FY25 ratio of 1.45x (although we would highlight that FY24 finished below the initial guide of 1.49x). While Billings outperformance continues to be supported by more financing, the headline number did not miss guidance. We believe the shift to RPO guidance was expected by investors and in our opinion should reduce future earnings volatility. More importantly, with achievable Revenue and FCF guidance, and earnings in the rearview, we do not see a negative near-term catalyst in sight, and expect the stock to outperform as investors look to own the cleanest large cap Security story in our coverage. Reiterate OP rating and maintain $385 PT."
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Shares of Palo Alto Networks closed at $343.36 yesterday.