Analysts On Palo Alto Networks: 'More Wood To Be Chopped'

Palo Alto Networks Inc PANW is likely to continue to gain market share while a higher proportion of revenue from existing customers should result in wider margins, analysts said Tuesday.

The California-based network security company beat fourth-quarter expectations Monday and at least several analysts followed up by boosting their price targets.

Shares of Palo Alto have gained more than 24 percent since December and changed hands recently at $148.10, up 1.4 percent on the day.

"The stock has had a massive run," FBR's Daniel H. Ives said. Monday's earnings beat and higher outlook "should give investors confidence that it still has room to grow."

Ives raised his price target 3 percent to $165 and maintained a Market Perform rating on the company.

Morgan Stanley's Keith Weiss increased his target nearly 10 percent to $158 and said the company's recent quarter revealed a "rare combination" of both increasing revenue and a widening margin.

Product revenue grew 54 percent to $217.7 million, while its operating margin grew to 12.4 percent, from 9 percent a year earlier.

Palo Alto competitors' Fortinet Inc FTNT and Check Point Software Technologies Ltd. CHKP, in contrast, have recently posted narrowing margins on higher expense, according to Weiss.

The combined revenue growth and improving margins present a "unique play" for investors, Pacific Crest's Rob Owens said. The analyst increased his price target on Palo Alto 6 percent to $160, maintaining an Outperform rating.

Shaul Eyal maintained his $150 target and Outperform rating Tuesday, but said "there's more wood to be chopped" for the company.

Palo Alto, with an 8.5 percent market share in network security, has "plenty of room" to grow its business, according to Eyal.