Analyst: Palo Alto Well Positioned To Gain Market Share, Generate Operating Leverage

Despite the “surprising” revenue miss reported by Palo Alto Networks Inc PANW for Q1, Wunderlich’s Bill Choi believes “the company is well positioned to gain market share and generate operating leverage.”

Choi maintained a Buy rating on the company, with a price target of $190.

Disappointing Q1

Palo Alto Networks reported disappointing Q1 results, with product revenue and billings hit by a longer sales cycle for large enterprise deals.

“A handful of large deals including multiple seven-figure deals slipped. PANW blames the architectural, platform sales process that is involving additional teams and c-level executives,” the analyst mentioned.

The company reported Q1 2017 revenue at $398.1 million, missing the estimate and the consensus, with EPS of $0.55, which was marginally ahead of expectations.

Billings grew 33.2 percent to $516.9 million, while product sales grew 11 percent to $163.8 million, with both metrics below the estimates.

“Bigger enterprise deals are taking longer, as customers evaluate PANW's full platform offering, which includes endpoints, cloud access security, threat correlation,” Choi stated.

Q2 Guidance

Management issued the guidance for Q2 below the consensus expectations, with a decline in close rates into Q2.

Palo Alto Networks guided to revenue and EPS of $426-$432 million and $0.61-$0.63, respectively, with the revenue falling short of the consensus forecast.

“PANW remains bullish on existing deal engagements, SP share gains, and refresh cycle of earlier customer cohort,” the analyst said.