Palo Alto Networks Soars As Q1 Report Shows Sales Momentum

Cybersecurity software vendor Palo Alto Networks Inc PANW reported first quarter results Monday that included revenues that rose 27 percent year-over-year and non-GAAP earnings of 74 cents per share versus 55 cents per share last year.

Both metrics exceeded expectations.

The company guided both fiscal 2018 and second quarter revenues in-line with the consensus and earnings per share above Street forecasts.

The Analyst

KeyBanc Capital Markets analyst Rob Owens reiterated an Overweight rating and $170 price target for Palo Alto Networks. 

The Thesis

The Q1 results were marked by revenue outperformance on the back of a 14 percent year-over-year acceleration in product revenue, better profitability metrics, an announcement concerning the appointment of insider Kathy Bonanno as CFO and upwardly revised guidance, Owens said. (See Owens' track record here.) 

Palo Alto Networks is poised to face easier comparisons — especially for product revenue — over the next two quarters, Owens said. The earnings per share outperformance was due to better product revenue and cost controls in sales and marketing, the analyst said. 

Despite the revenue beat, Owens said billings came largely in line on a smaller-than-expected proportion of long-term deferred revenue. 

KeyBanc raised its estimates for Palo Alto Networks on the raised guidance and outperformance. The company is well-positioned ahead of an industry refresh cycle, Owens said. 

"We see a compelling road ahead as improving sales execution and increased traction with the new solutions coincide with product growth comparisons turning far easier in the second quarter of FY18." 

The Price Action

Palo Alto shares, which were up about 14 percent for the year-to-date period, picked up momentum after the Q1 report. 

In pre-market trading, the shares were up 7.58 percent at $153.34.

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