The 'Best-Of-Breed' Cybersecurity Play Analysts Are Buying

• Palo Alto Networks Inc PANW shares have appreciated 36 percent year-to-date, despite a near 10 percent decline since August 10.
• Buckingham Research’s Rohit Chopra initiated coverage of the company with a Buy rating and a price target of $190.
• Palo Alto is the most compelling way for investors to participate in the IT security segment from a pure play perspective, Chopra believes.

Network security solutions provider Palo Alto is a “best-of-breed vendor aggressively building a comprehensive platform which is becoming a strategic differentiator,” analyst Rohit Chopra said. This platform is helping Palo Alto to expand its market share and emerge as the fastest growing company in the space.

An increase in the proportion of the company’s recurring revenues to over 50 percent of its total revenues in F1Q16 is expected to have a positive impact on free cash flows, Chopra mentioned.

The recent decline in Palo Alto’s shares offers investors a “compelling entry point,” the report said, while adding, “We think risk/reward is favorable (29% upside/19% downside) based on our estimates and recommend investors add or build positions at current levels.”

Chopra believes that Palo Alto’s shares warrant a premium multiple in view of the company’s leadership position in NGFW, significant recurring revenues, lack of earnings at competitors and secular security tailwinds.

The company’s growth rate has outpaced the market and its rivals, with revenue growth in the most recent quarter at 55 percent y/y, with billings, subscription and deferred revenue growth of 56 percent, 45 percent and 64 percent, respectively, on a y/y basis.