Palo Alto: This Cybersecurity Firm's Q1 May Prove Foolproof

The earnings call is scheduled for 1:30 p.m. Pacific Time.

Q1 Expectations

Analysts, on average, expect the company to report earnings of $0.53 per share, up from $0.35 per share in the year-ago period.

In the past four quarters in the run up to the first quarter, the company bettered expectations in two quarters and reported in line in the remaining two quarters.

Revenues are estimated to have increased 34.70 percent to $400.2 million. Typically, the revenue split between products and services is roughly even.

The company guided to non-GAAP earnings of $0.51–$0.53 per share on revenues of $396 million to $420 million.

Set Up Best In 12 Months -UBS

Previewing the first-quarter results, UBS analyst Andrew Nowinski said he believes the set up heading into earnings is the best it has been in 12 months, given the ramping demand trends, lowered expectations and the completion of the commission expense accounting change. The company now expects product revenue growth of 12–13 percent in 2017, down from 36.2 percent in 2016.

Oppenheimer Sees Earnings Upside

Meanwhile, Oppenheimer expects earnings upside in the first quarter based on four factors:

1. Easing year-over-year comparisons and the shift in industry trends toward subscription-based solutions.
2. Anecdotes of network security vendors such as Barracuda Networks Inc CUDA, Check Point Software Technologies Ltd. CHKP and FireEye Inc FEYE beating consensus estimates by an average of 3.7 percent.
3. Strong revenue trends in Americas, which fetch the company 71 percent of the total revenues, and improving sales productivity in the EMEA.
4. Solid traction of Traps and VM-Series.

For the fourth quarter of 2016, the company reported non-GAAP earnings per share of $0.50, in line with estimates and up from $0.28 in the year-ago quarter. Revenues rose 41 percent to $400.8 million, also exceeding Street estimates.

Gross margin of the company is commendable, remaining at 72 percent plus.

Outlook

For the second quarter, analysts expect earnings of $0.63 per share on revenues of $438.88 million. The consensus forecast for the fiscal year is $2.78 per share in earnings, up an estimated 67 percent, and $1.83 billion in revenues, an estimated 33 percent growth.

Sell-side analysts are bullish on the stock, with most having their respective top rating on the shares of the company. The price target over the past one-month ranged between $184 and $200.

Ahead of the results, UBS reiterated its Buy rating and lifted its price target to $184 from $170. Imperial Capital has an Outperform rating and a $190 price target. Oppenheimer also has an Outperform rating and a $184 price target.

Over the quarter ending October 31, the stock has gained 17.5 percent compared to a 0.5 percent gain by the NASDAQ Composite (INDEXNASDAQ:.IXIC).

In the eventuality of the expectations materializing, the stock could run up from its multi-month highs. On the downside, the stock has support around its 50-day SMA (currently at $153.06) and 200-day SMA (currently at $141.84)

At the time of writing, shares of Palo Alto Networks were down 1.19 percent at $159.43.