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Sell-Side: Short-Term Pain For Long-Term Gain With Palo Alto Networks

Sell-Side: Short-Term Pain For Long-Term Gain With Palo Alto Networks

Shares of Palo Alto Networks Inc (NYSE: PANW) continued to rebound with investors and sell-side analysts seeing long-term upside amid a shift to cloud security that outweighs weaker near-term guidance.

The stock initially dropped after the fourth-quarter print despite results that beat Street expectations. But it bounced back in after-hours trading and continued to trade up Thursday as several analysts continued to recommend the stock.

The Analysts

Wedbush analyst Daniel Ives kept an Outperform rating and $275 price target on the stock.

Barclays analyst Saket Kalia has Palo Alto rated Overweight with a $242 price target.

KeyBanc’s Rob Owens lowered the price target from $280 to $250 but kept an Overweight rating on the stock.

Bank of America's Tal Liani reiterated a Buy rating and $275 target price.

UBS analyst Fatima Boolani maintained a Buy rating on Palo Alto with a $250 price target.

JMP’s Erik Suppiger reiterated a Market Outperform rating with a $250 target price.

BMO’s Keith Bachman kept an Outperform rating but lowered his price target on the stock from $250 to $245.

Long-Term Play

Palo Alto is part of a broader computing security narrative of a shift to cloud-based protection. Analysts acknowledged the potential short-term pain amid the transition, but universally saw long-term promise.

Fiscal 2020 guidance “is nothing to write home about,” Ives acknowledged, saying the changing business model could bring Street numbers down for a year or more. But investors should focus on three-year targets for 20% growth and stronger cash flow trajectory, he said.

“This remains a near-term pain for long-term gain dynamic as PANW (as well as its peers) transition from a firewall player into more of a platform cloud play,” he wrote in a note.

Owens also said the multiyear outlook is compelling.

“The cloud-related businesses are garnering significant momentum,” Owens wrote.

Next Generation Growth

Kalia pointed out Palo Alto’s next generation security businesses boosted billings and could see 60% annual growth by 2022. Liani also highlighted the “exceptional growth” in next-gen security solutions.

“We generally walked away from management’s Analyst Day presentation more comfortable with Palo Alto’s dominant position across cyber security,” Liani wrote.

Bears may think those next generation security targets are high, Boolani said, who also noted investor pessimism on the legacy firewall business.

But, Boolani wrote, “the company's overall size and stature with its distribution avenues … offer underappreciated pricing latitude to help achieve these objectives.”

Management remains committed to growing even the core firewall business at more than 20% a year, noted Suppiger, who sees Palo Alto as undervalued. The fourth-quarter results still “reflect strength in the company’s core business,” he wrote.

Palo Alto’s longer-term revenue and billings growth targets may be “a bit aggressive,” added Bachman. But the price is right.

“We believe PANW's valuation is attractive relative to its growth potential,” Bachman wrote. “We think the stock has meaningful upside potential.”

Price Action

Palo Alto Networks stock was up 4.4% at $209.50 at publication time.

Related Links:

Palo Alto Falls Despite Q4 Earnings Beat, Company To Acquire ZingBox

10 Biggest Price Target Changes For Thursday

Latest Ratings for PANW

Nov 2019Initiates Coverage OnBuy
Nov 2019Initiates Coverage OnNeutral
Oct 2019Initiates Coverage OnBuy

View More Analyst Ratings for PANW
View the Latest Analyst Ratings

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