Palo Alto Networks stock has soared for the reason that release of its fourth-quarter earnings report on Monday, entering Friday’s session up nearly 17% since Aug. 5, compared with a gain of about 7% for the S&P 500. Translation: Investor expectations for the cybersecurity leader are high. Will the corporate beat Wall Street estimates again this quarter — revenue of $2.16 billion and earnings per share of $1.41 per share, in keeping with LSEG — and lift its guidance? That’s what we hope. But given the stock’s big move since we bought it on Aug. 2 for about $303 per share, we downgraded Palo Alto to our hold equivalent rating on Friday and plan a small sale on Monday. (We are currently prohibited from trading the stock.) This short-term adjustment in our considering doesn’t change our belief that cybersecurity is a major growth market within the years ahead and Palo Alto Networks is the perfect approach to spend money on the theme. It’s simply a move out of discipline in case the stock gets a dent from the report. “If it gets a dent, we’ll look to buy it back because the story is still good long-term,” Jeff Marks, director of portfolio evaluation, said Friday. Beyond the headlines, listed here are three other aspects to look at when Palo Alto reports after the market closes on Monday. 1. Is the brand new sales strategy working? Palo Alto lowered its full-year 2024 revenue and billing forecast when it released quarterly ends in February because the corporate has moved to “platformization,” or bundling its services and products. That’s because the corporate initially had to present away certain products free of charge or at a reduction while customers tested consolidated offerings. Palo Alto shares plunged 28% within the session following the Feb. 20 release. To us and CEO Nikesh Arora, that is all short-term pain for long-term gain as Palo Alto tries to achieve more share within the competitive market and turn out to be a one-stop shop for cybersecurity needs. “What matters to me is whether we see results from this strategy of selling platforms, called platformization, which CEO Nikesh Arora said could attract some new customers looking for a return on investment,” Jim Cramer said through the monthly meeting on Wednesday. He added the stock could “see a big bounce if the comprehensive offering they have produces anything positive.” Wells Fargo agrees: In a note to clients Thursday, analysts said the full variety of platformization customers will probably be the “key indicator” to indicate whether the strategy is working. Palo Alto said in its May quarterly earnings call that it had 900 platformization customers, up from 835 customers within the previous quarter. Evercore ISI, alternatively, said Thursday that it saw “increased pressure” for discounts within the quarter and claimed Palo Alto’s platformization strategy received “mixed feedback,” citing its quarterly partner survey. This led analysts to be more cautious on the stock until Monday’s earnings release, but reiterated their long-term belief that Palo Alto is the “dominant cyber vendor.” PANW YTD Mountain Palo Alto Networks (PANW) Year-to-date Performance 2. How’s cybersecurity spending? Despite concerns about cybersecurity spending in a slowing economy, recent quarterly results from firewall rivals like Fortinet and Check Point Software show that spending has held up. Analysts at Barclays, for instance, cited strong results from each as a positive for Palo Alto’s upcoming quarter. The continued spending may have a positive impact on Palo Alto’s revenue as the corporate continues to be a number one player in cybersecurity. In fact, it was the primary company within the industry to succeed in a market capitalization of $100 billion in December 2023. “We think [Check Point Software] “The results bode well for the firewall market, with healthy large deal activity within the quarter, strength in latest business and increasing demand for firewall devices,” the analysts wrote in a note to clients on August 9. “[Fortinet] The company also performed higher within the second quarter as hardware returned to more normal seasonality and the software portion of the product line saw healthy growth, leading to product outperformance. As for other competitors, the case for firms to present Palo Alto their business is getting stronger. A faulty update from cybersecurity company CrowdStrike caused one among the biggest global IT outages in history last month, disrupting operations at firms from banks to airlines. We don’t think all CrowdStrike customers are jumping ship, however the unlucky situation definitely made Palo Alto seem more attractive to those still undecided and presents a possibility for sales reps. 3. Has RPO increased? Investors should recognize the importance of Palo Alto’s remaining performance obligation (RPO) fairly than focusing solely on billing growth. RPO represents the full value contracted through the quarter, while billing measures the amounts actually billed. Arora has increasingly placed emphasis on RPO, which showed sequential acceleration last quarter. However, billings declined over the period, putting pressure on shares after the third-quarter earnings release. RPO can provide additional insight into future profitability because it aspects in backlogs and deferred revenue. Both RPO and billings needs to be considered. The market will probably be particularly keen to see management’s guidance for the present quarter and the remaining of the 12 months. We will probably be closely monitoring stock performance after the earnings call. If shares fall significantly, we are going to consider one other buy because of continued demand for cybersecurity offerings. In two of the last three quarters, we bought more of the stock following dips after the earnings release. We also told members that the May dip was a buying opportunity. (Jim Cramer’s Charitable Trust is long PANW. A full list of stocks will be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is distributed before buying or selling a stock in his charitable trust’s portfolio. If Jim has discussed a stock on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. 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Palo Alto Networks’ booth on the third day of Mobile World Congress, the telecommunications industry’s largest annual gathering, to be held at Fira de Barcelona in Barcelona, ​​Spain, on March 1, 2023.
Chris Jung | Nurphoto |
Palo Alto Networks The stock soared into Monday’s fourth-quarter earnings report and was up nearly 17% since August 5 as of Friday’s session, in comparison with about 7% gain for the S&P500. Translation: Investors’ expectations for the cybersecurity leader are high.
