Analysts Largely Bullish On Palo Alto After Q1 Print

Cybersecurity company Palo Alto Networks Inc. PANW reported mixed first-quarter earnings results ahead of the company’s plans to launch a next-generation firewall for expanded 5G networks.

The Analysts

• Wells Fargo analyst Philip Winslow reiterated an Outperform rating and set a price target of $275.
• Raymond James analyst Michael Turits reiterated an Outperform rating and lowered the price target from $258 to $220.
• Wedbush analyst Daniel Ives maintained a Neutral rating and $225 price target.
• Jefferies analyst John DiFucci maintained a Buy rating and lowered the price target from $267 to $249

Wells Fargo

Palo Alto demonstrated strong results in terms of revenue, earnings per share and billings on the back of continued customer demand and sustained sales, Winslow said in a note.

"Palo Alto continued healthy upsell into its existing customer base along with solid new customer acquisition, and noted lifetime value minimum spending at its top 25 customers increased 45-percent year-over-year to $33.6 million in Q1 versus $31.7 million in Q4 2018 and $23.2 million in the year-ago period.”

The results reinforce a bullish view on the company’s ability to gain market share, increase customer wallet share and build the Application Framework's potential, according to Wells Fargo. 

Wedbush

Palo Alto has been one of the most premier network security vendors during the cybersecurity developments of the last decade, said Wedbush's Ives.

“We have seen the company’s impressive evolution take hold as share gains vs. the likes of traditional networking players such as Cisco Systems, Inc. CSCO were major fuel in its growth engine, a differentiated and expansive end-to-end NGFW product suite, a successful product expansion with its Traps offering and slew of other modules going after massive network security opportunity, and most recently introducing its Application Framework architecture.”

The company continues to bet on the cloud and will likely focus on building its leadership to remain a step ahead of the competition, the analyst said. 

Raymond James

Assuming that Palo Alto achieves strong subscription growth, Turits said Palo Alto's refresh cycle has likely not yet reached its peak.

“Going forward, the company is pointing to go-to-market 'speedboat' initiatives around securing cloud workloads (Evident/Redlock) and cloud delivered security (GPCS/Aperture), and more recently around a renewed focus on the carrier market and the 5G opportunity with the announcement today of the 'K2' appliance series.”

The company has not indicated any major changes in its channel go-to-market strategy, but Raymond James would be unsurprised to see shifts in channel management over tiem, the analyst said. 

Jefferies

DiFucci outlined his takeaways and observations from Palo Alto's Q1 print and conference call: 
New business momentum was driven by annual contract value growth of new subscriptions. These factors were relatively modest, despite extremely difficult comps congruent to a new product refresh.
Palo Alto's base value, which is calculated by data from subscriptions, maintenance and refresh product revenue, is $123. 
The company has a market opportunity in the shift from 4G to 5G.
Palo Alto's cash flow was down 8 percent year-over-year, including a $52.3-million debt repayment headwind.
The company added 2,500 new customers in the quarter.  

“We view the large new customer count as a very optimistic indicator for the future given the company’s land-and-expand selling model and an increasing lifetime value.”

Price Action

Palo Alto shares were down 1.74 percent at $172.98 at the time of publication Friday. 

Related Links:

Raymond James: Palo Alto Networks Continues To Gain Share

Analyst: Palo Alto Now Has Better Opportunity To Outperform