Palo Alto Networks Has 'Compelling' Risk-Reward, Says Evercore ISI

Security vendor Palo Alto Networks Inc PANW has room to flourish in multiple arenas, according to Evercore ISI.

The Analyst

Evercore ISI analyst Ken Talanian upgraded shares of Palo Alto Networks from In Line to Outperform and increased the price target from $150 to $180.

The Thesis

"We believe the risk-reward has become more compelling with product growth expectations now reset to more realistic levels," Talanian said in a Thursday note. (See the analyst's track record here.) 

The best measure of growth for Palo Alto Networks is total billings growth, rather than product revenue growth, to which investors pay more attention, the analyst said.

"On this basis we view the back half of F18 as conservative (consensus F18 product revenue estimates have come down by 11 percent in the last year) and believe the risk-reward is compelling," Talanian said. 

Shares of the company now trade below more mature infrastructure software companies. Triple catalysts — namely the impact of product refresh, continued share gains and expansion of Palo Alto's total addressable market — could spur a re-rating in calendar 2018, Talanian said.

Given the maturation of hardware products released in February 2017, and compelling price and performance metrics, Palo Alto Networks could continue to take share in the enterprise data center firewall segment, as well as expand its TAM with branch offerings, according to Evercore ISI. 

The growing list of subscription offerings will continue to help the company address cloud environments and diversify away from on-premise-centric security, Talanian said. 

The Price Action

Shares of Palo Alto Networks advanced about 13 percent over the year.

The stock was up 2.66 percent at the time of publication. 
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