Argus Lowers Palo Alto's PT To $205, Reiterates Long-Term Buy Rating

Argus’ Joseph Bonner maintained a Buy rating for Palo Alto Networks Inc PANW, while reducing the price target from $227 to $205. He mentioned that Palo Alto’s growth is expected to be driven by the company’s superior technology, market share gains, sales of additional products to existing customers and international expansion.

Although Palo Alto has a market share of 10 percent, its revenues are growing at a rate of 50 percent, driven by billings growth of 60 percent, analyst Joseph Bonner mentioned. He added that the company is witnessing its fastest growth in the US.

“We also like management’s balanced focus on revenue growth and increased profitability,
and note that the company could become an acquisition target for a larger tech player,” Bonner wrote.

Palo Alto reported its fiscal 3Q16 results, with a 54 percent y/y increase in its revenues and 58 percent y/y growth in its gross profits. The company’s GAAP operating loss widened from $43 million in 2Q15 to $62.5 million, while its non-GAAP EPS more than doubled from $0.19 in 2Q15 to $0.40 in 2Q16.

Stronger-than-expected growth in the company’s service billings in the second quarter will result in higher-in-period commissions. Palo Alto has narrowed its 4Q16 non-GAAP operating margin guidance from the earlier 22-25 percent to 18-19 percent. The EPS estimates for FY16 and FY17 have been reduced from $1.72 to $1.63 and from $2.70 to $2.66, respectively.