Wall Street’s enthusiastic response on Tuesday to Palo Alto Networks’ solid earnings reinforced our belief that the cybersecurity stock is getting overextended. Shares rose greater than 8% in afternoon trading to around $372 per share after Palo Alto reported better-than-expected fourth-quarter fiscal 2024 earnings and revenue late Monday and provided an upbeat outlook. The roughly 27% gain since Aug. 5 puts the stock just just a few dollars below its record close of nearly $377 on Feb. 9, recouping the fiscal second-quarter disaster that sent shares plummeting to a 2024 low on Feb. 21. Jim Cramer described the recent move as “parabolic.” But that does not imply he’s any less bullish on Palo Alto in the long run. In fact, the club raised its price goal Monday night from $360 to $380 per share. We reiterated our 2 rating on the stock in recognition of its excellent move. Jim has even suggested in recent sessions that it would not be a foul idea to take some profits. Here’s an excerpt from our club evaluation of Palo Alto’s numbers: The RPO (remaining performance obligation) forecast was a bit low. But this was greater than offset, in our view, by management’s better-than-expected revenue, earnings and recurring revenue forecast for each the present quarter (fiscal 2025 Q1) and full fiscal 2025. To de-emphasize billing results, which represent the whole dollars billed in a given period, and put more weight on RPO, which represents the whole value of services contracted throughout the quarter, management has stopped providing billing forecasts altogether. The team now also provides annual recurring revenue (ARR) forecast. PANW YTD Mountain Palo Alto Networks YTD Wall Street analysts echoed our bullish view. At least two dozen research firms – including Wells Fargo, Morgan Stanley, JPMorgan and Goldman Sachs – have raised their price targets on Palo Alto, in keeping with FactSet data. Wells Fargo, particularly, rose from $385 to $416 per share – noting that Palo Alto’s “platformization” bundling of offerings continues to “gain momentum.” Palo Alto reported over 1,000 platformization customers in its fiscal fourth quarter, up greater than 90 from the previous quarter. Management also reiterated its goal of reaching $15 billion in annual recurring revenue in fiscal 2030. Wells Fargo estimated that it will need “2,500 to 3,500 platformization customers, or an average of 335 new customers per year, to hit the midpoint, which is roughly what they added in fiscal 2024.” During the earnings call following the earnings release, CEO Nikesh Arora also highlighted Palo Alto’s progress in platformization. “I know there was a lot of consternation about our platformization strategy six months ago,” Arora said, likely referring to the post-earnings sell-off within the stock after management announced the refocus in late February. He added, “I just want to say that I wish we had started down this path sooner. The level of interest and activity around this has certainly been encouraging and promising.” Morgan Staley believes Palo Alto will proceed to see revenue growth. “We believe the bottom is now behind us and expect revenue growth to accelerate throughout fiscal 2025,” analysts said, supporting the rise of their price goal to $390 from $360. Of course, not everyone on Wall Street is convinced that Palo Alto still has significant growth ahead. UBS analysts, who reiterated their hold rating on the stock, said “it’s hard to justify any upside here,” given the low- to mid-double-digit growth forecast for RPO. Analysts raised their price goal to $355 per share from $345. But that represents an almost 5% decline from current levels. (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 may receive a trade alert before Jim makes a trade. After sending a trade alert, Jim waits 45 minutes before buying or selling a stock from his Charitable Trust’s portfolio. When Jim has discussed a stock on TV, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION MENTIONED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO PARTICULAR RESULT OR RESULT IS GUARANTEED.
Nikesh Arora of the United States on the primary hole throughout the third round of the Alfred Dunhill Links Championship on the Old Course on October 2, 2021 in St. Andrews, Scotland.
David Cannon | David Cannon Collection |
Wall Street’s enthusiastic response on Tuesday to the solid earnings of Palo Alto Networks has reinforced our belief that the cybersecurity sector is overstretched.
