Shares of Palo Alto Networks Inc. experienced a significant relief rally on Monday after the cybersecurity company’s earnings scare last Friday turned out to be nothing more than a false alarm.
Leading up to the company’s announcement that it would be reporting its results on Friday night, the stock had sold off by 18%. Investors were understandably concerned about the unusually timed announcement, but it turns out their fears were unfounded as Palo Alto Networks’ results and outlook ended up being solid.
As a result, the stock is currently up 15.7% in Monday morning trading, marking its largest single-day percentage gain in approximately two years. Analysts on Wall Street are now closely examining the company’s new targets to determine its future prospects.
RBC Capital Markets analyst Matthew Hedberg expressed confidence in Palo Alto Networks’ position for consolidating enterprise security spending and emphasized the company’s expanding margins. In a note to clients, he stated, “Overall, the call reinforced our view that Palo Alto remains in a great position to consolidate enterprise security spend and in turn, remains a great way to invest in security at the platform level with expanding margins.” Hedberg also mentioned an “upward bias” in metrics like billing and free cash flow, particularly as they look ahead to fiscal years 2024 and 2026. He rates the stock at outperform and raised his price target from $250 to $281.
Similarly, Wolfe Research’s Joshua Tilton commented on the only real negative aspect of the surprise fourth-quarter earnings event, which was the timing on Friday night. However, even with this minor setback, it is clear that Palo Alto Networks remains a strong contender in the cybersecurity industry.
Overall, the company’s recent earnings scare can now be put to rest as investors focus on the promising future of Palo Alto Networks.
Positive Sentiment Surrounds Palo Alto Networks’ Earnings and Analyst Day
The timing of the event put investor sentiment at a low, but Palo Alto Networks surprised with better-than-expected results and no catastrophic news. With their reputation as the leading brand in the security market, offering highly relevant products to a large customer base of chief information security officers (CISOs), the company’s position remains strong. Additionally, there is potential for exceeding fiscal 2026 targets, bringing further upside potential.
Management Addresses Bearish Concerns
There were concerns among investors about the company’s commentary on customers opting for deferred payment terms. However, Palo Alto Networks had already taken this into account when providing guidance for fiscal 2024 free cash flow. Despite lowered expectations leading up to the event, the reported 37.5% figure aligned with consensus estimates, proving that fears were unfounded.
Opinions Differ Among Analysts
Despite the positive outcomes, UBS analyst Roger Boyd remains cautious. While the fiscal fourth-quarter earnings and analyst day exceeded expectations, Boyd maintains a neutral stance. His view is grounded in the belief that new estimates do not allow for substantial expansion. Although fiscal 2024 and 2026 forecasts showed improvements, Boyd argues that they lack conservatism as they call for zero deceleration in top-line metrics. This contrasts with previous guidance, which predicted a 5 percentage point deceleration. He also notes that the shrinking hardware firewall business represents less than 10% of revenue.
Although Boyd maintains his neutral position, he has increased his price target on Palo Alto Networks shares to $260 from $220.