'Hats Off' To Palo Alto: Wunderlich

• Palo Alto Networks Inc PANW stock has risen 35.59 percent year-to-date.
• Wunderlich’s Rob Breza has maintained a Hold rating on the company, while raising the price target from $180 to $190.
• Palo Alto has delivered another quarter of robust topline growth and improving operating leverage. However, the current stock valuation appears high, according to Breza.

According to the Wunderlich report, “PANW continues to accelerate revenue growth and take market share as a result of increased adoption of its platform approach. Wildfire and TRAPS are driving strong billings that continue to outpace revenue growth.”

The company announced its 4Q15 revenue and EPS well ahead of the consensus. Services revenue grew 65 percent year-on-year, driven by solid renewal rates, growing market share and 70 percent SaaS subscription growth.

Billings also saw strong growth of 69 percent year-on-year, well ahead of the consensus, while operating margins continued to expand.

Breza believes that Palo Alto’s “strong results were driven by the company's ability to gain market share through new customer acquisition and expand the number of services sold to its existing customer base.”

The company also announced its 1Q16 guidance well above expectations. Following the achievement of operating margins in the low teens in 4Q15, the management expects to reach operating margins of 22-25 percent by the end of FY16. The company has also targeted FCF margin of over 30 percent for FY16.

The revenue and EPS estimates for FY16 and FY17 have accordingly been raised.