Roundup: Analysts reach bullish consensus on PANW

Palo Alto Networks Inc. PANW posted impressive F3Q results on Wednesday, and analysts seem optimistic about the cyber security company’s future prospects. Here’s a look at what some of Wall Street’s top minds have to say:

Morgan Stanley, Rating: Overweight

Keith Weiss sees Palo Alto as being well-positioned for continued growth. He points to the firm’s expanding customer base. PANW added a net of 1,500 customers this past quarter, which marks a 38 percent increase from last year. Morgan Stanley’s 2015 Chief Information Security Officer survey predicts further market penetration, “with the percentage of CISO’s reporting Palo Alto Networks as their primary firewall vendor to expand from 13% today to 23% over the next cycle.”

Furthermore, Weiss highlights the fact that “the average customer has increased their product spend with PANW by 12% over the past year.” So as the firm attracts new customers, it’s also encourage existing customers to spend more on its services.

Credit Suisse, Outperform

Analyst Philip Winslow expects Palo Alto to continue advancing in the cyber security sphere. He draws attention to its acquisition of Cirrosecure, a provider of Internet application security, which it plans to offer as a cloud-based subscription service.

Winslow also looks favorably on company management, saying that “[its] ability to execute its vision positions the company to continue to gain share in the network security market.”

He says “there was nothing negative to note about this quarter.”

UBS, Buy

UBS’s Brent Thill says that Palo Alto Networks is working “like clockwork.” He points to “strengthening pipelines” as one reason for optimism. He also believes that “key distributions relationships” have yet to be fully tapped. Lastly, Thill highlights Palo Alto’s diverse and “thoughtfully expanded” portfolio within what he calls an “underpenetrated installed base.”

Pacific Crest, Overweight

Rob Owens expects subscription services to constitute a fast-growing portion of Palo Alto’s revenues. He notes that subscription offerings were up by 71% YoY in F3Q. He believes that the $18 million acquisition of Cirrosecure will help subscriptions become a larger part of the mix.

Owens is also optimistic that the firm will see rapid growth in several metrics over the coming years. “Palo Alto remains unique in its disruptive potential, scale, growth and
profitability. With five quarters left to reach its 22%-25% operating-margin target,
profitability is rapidly increasing. We now see potential for free cash flow of
$600 million-plus in calendar 2017.”

Deutsche Bank, Buy

Analyst Karl Kierstead predicts that Palo Alto Networks will benefit from a “favorable spending environment” in the cyber security sector. He points to the successful quarters of peers in the industry: FireEye Inc. FEYE posted 69 percent revenue growth, while Check Point Software CHKP was at 9 percent and Cisco CSCO at 14 percent. Kierstead believes that “the prospect of further M&A activity” is one reason not to think “we’re at the top” yet.