Palo Alto Retains Outperform Rating At Baird, Mixed Guidance Balanced By Subscription Growth

Palo Alto Networks Inc PANW reported solid FQ4 results, citing an improved macro-economic environment. The company’s guidance for FQ1 and F17 was “mixed relative to expectations,” Baird’s Jayson Noland said in a report. He maintained an Outperform rating on the company, while reducing the price target from $180 to $175.

Palo Alto reported its quarterly revenue at $401 million, beating the consensus estimate of $390 million. Non-GAAP EPS came in at $0.50, in-line with expectations. Billings of $572 million were ahead of the consensus estimate of $562 million, and up 45 percent y/y.

Guidance Reflects Deceleration

The company announced its FQ1 revenue and non-GAAP EPS guidance at $396-$402 million and $0.51-$0.53, missing the consensus expectations of $402 million and $0.56, respectively.

Although the non-GAAP EPS guidance for F17, at $2.75-$2.80, was higher than the consensus of $2.65, the upside was mainly due to commission amortization and a share buyback authorization, analyst Noland pointed out.

While the company’s product revenue grew 24 percent y/y in FQ4, management guided to growth of 12-13 percent y/y for F17, citing tough comps from this fiscal year and a shift to subscription services.

Strength In Services

Management indicated that services was growing as a proportion of its overall business. Revenue from subscription services grew 78 percent y/y in the quarter to $106.5 million.

“We remain buyers of the stock and continue to expect Palo to take share with its platform-based approach and hybrid SaaS model,” Noland commented.

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