Imperial Stays Bullish On Palo Alto, But Cuts Estimates

Imperial Capital’s Michael Kim believes that Palo Alto Networks Inc PANW is continuing to capture market share over existing vendors.

Kim maintained an Outperform rating on the company, while lowering the price target from $190 to $180. The analyst believes the stock has upside potential of 32 percent from its recent levels.

Lengthening Sales Cycles

However, billings growth during FQ1 2017 of 33 percent year-on-year, reflected a moderation from recent levels, driven by the lengthening sales cycles for larger transactions.

While reporting the FQ1 results, management indicated that purchasing decisions have been needing additional approvals.

“Although PNAW has since closed several of these transactions and the company’s win rates remain consistent, we believe enterprise customers will remain more disciplined around their security spending in the near term,” Kim mentioned.

Attractive Potential

At the same time, the analyst believes that at its current price levels, the stock offers “attractive appreciation potential,” given Palo Alto’s robust growth at scale, considerable cash flow and expanding margins.

Kim also believes the company continues to be on track to establishing a “top-tier leadership position” in the market, driven by its integrated security platform.

“We believe investors could become more constructive on the stock with stronger billings growth, higher product sales during F2H17, and ramping adoption of newer subscription services,” the analyst went on to say.

The FY 2017 and FY 2018 revenue estimates have been lowered due to the longer sales cycles, although the EPS estimates have been maintained.