Palo Alto Networks is fighting back after a brutal earnings selloff in February, and Wall Street analysts say the cybersecurity company’s earnings next week will justify its resurgence. Palo Alto shares plunged 28% on Feb. 21, a session after the corporate offered a more cautious outlook for the rest of 2024. The stock then fluctuated for greater than a month until the stock bottomed out at $265 apiece on April 4. Investors’ biggest concerns: Weakness within the U.S. federal government market and the financial impact of expanding the “platformization” strategy for bundling services and products. However, Palo Alto’s stock has risen 13.2% since then, outpacing the iShares Cybersecurity and Tech ETF’s 1.2% decline over the identical period. According to recent research notes from Barclays and Morgan Stanley, there are three reasons investor sentiment will proceed to enhance leading as much as the outcomes release on May 20 and beyond. 1. History is unlikely to repeat itself. Sellers got here out in full force after CEO Nikesh Arora announced a pivot to speed up “platformization” throughout the February earnings call. The change in business strategy requires Palo Alto to make its recent services and products available to customers freed from charge to exhibit their diverse advantages. This, in turn, would impact billings and revenue growth over the subsequent 12 to 18 months. Palo Alto argued that short-term headwinds would repay later with larger deals as customers search for a one-stop shop for his or her cybersecurity offerings. The company in February cut its forecast for total billings for fiscal 2024 to a variety of $10.1 billion to $10.2 billion. The previous forecast was $10.7 billion to $10.8 billion. The recent outlook was below Wall Street analysts’ then-estimates of $10.74 billion. Meanwhile, Palo Alto gave total revenue guidance of $7.95 billion to $8 billion for fiscal 2024, down from the corporate’s previous forecast of $8.15 billion to $8.2 billion. Analysts’ expectations were also at $8.19 billion. However, Barclays analysts said these discounted offers are unlikely to have any impact on the corporate’s financial performance over the subsequent three months. “This is the first quarter that PANW is expanding its free trials [and] Platformization strategy, but we didn’t gain any meaningful insights [go-to-market strategy] “We have not yet made any changes to our checks, so free trial billing headwinds may be smaller than expected,” the analysts wrote in a May 7 note. What’s more, management has already lowered Palo Alto Network’s guidance for the rest of 2024, analysts say. The billing estimates for the upcoming release are de-risked, meaning last quarter’s numbers were conservative enough to take investors away assume that the probability of an additional decline is low. Not only could this avoid one other huge drop within the stock price post-earnings, nevertheless it also provides ample opportunity for management. We look ahead to hearing more about how Arora’s commitment to the corporate will pan out during Palo Alto’s post-earnings conference call Platformization’s impact, including a clearer timing of when the corporate will profit from the brand new strategy Learn more about how customers are responding to the free trials and an update on the adoption rate of Palo Alto’s more consolidated offerings Although it has been a volatile yr for the Palo Alto stock, the corporate was busy gaining more market share, based on analysts. “PANW continues to gain market share across multiple security categories as enterprises adopt the broader platform,” Morgan Stanley analysts wrote. Meanwhile, Barclays said: “Platformization is happening, but not because of free trials – but simply because of good old-fashioned cross-selling and competitiveness.” Palo Alto Networks has closed plenty of big deals. Our favorite cybersecurity name and portfolio stock was used to support UnitedHealth Group subsidiary Change Healthcare after an enormous attack in February caused major disruption across the US healthcare system. In a recent interview with CEO Arora, Jim Cramer said that Change has “brought” healthcare [Palo Alto] in because [they] has understood fix the issue and praises the corporate for its track record of providing effective cybersecurity solutions in comparison with its competitors. Arora has long said Palo Alto’s shift to platformization will ensure its edge amongst competitors because the industry consolidates spending. “If you have 10, 20, 30 cybersecurity vendors deployed in your infrastructure, you need the data from all of them,” CEO Arora said on “Mad Money” last week. “You have to be able to analyze them on the fly.” The club took a similarly hopeful stance on the time when shareholders panic-sold the stock after the earnings. We believed the short-term pain was definitely worth the long-term gain, and we have even bought Palo Alto stock twice since Q2 earnings 3. A superb time to be a frontrunner in cybersecurity. Finally, demand for industry offerings stays high as firms increasingly face threats from malicious actors. In addition to Change Healthcare, club holding Microsoft also announced in January that hackers had breached the e-mail accounts of employees, including top executives. Other major firms similar to cleansing supplies retailer Clorox, Vans owner VF Corp and casino operator Caesars Entertainment have all disclosed attacks prior to now yr. Morgan Stanley analysts said their latest survey results suggest that “despite concerns about ‘spending fatigue’ last quarter, there is sustained demand for securities.” “Cybersecurity remains a relative bright spot as threats and new regulatory requirements increase a higher priority at the C-level,” Morgan Stanley analysts wrote, citing the Securities and Exchange Commission’s stricter disclosure requirements for publicly traded U.S. companies. U.S. federal spending also looks better than last quarter, boosting overall demand for cybersecurity offerings, Barclays said, citing peer comments. Tenable management, for example, previously expressed optimism about spending during a May 1 conference call, with Chief Financial Officer Stephen Vintz calling the federal pipeline “strong.” For its part, Palo Alto said the corporate has several projects with the federal government that weren’t accomplished within the previous quarter. “All in all, we are satisfied with the 3Q setup for billing, [annual recurring revenue]And [free cash flow]“Based on the bar, our own checks and activity in the Federal Reserve market – we still believe PANW needs to restore investor confidence with at least another quarter of consistent performance, but we believe this third quarter will begin that process could,” Barclays analysts wrote. The club focuses on how much industrial spending flows to Palo Alto compared to competitors, but we’re not worried about demand for the company’s offerings because the demand for cyber protection is endless. “Especially now that the hackers have access to AI and this company has the most comprehensive suite of solutions on the market,” Jim said last week. (Jim Cramer’s Charitable Trust is long PANW, MSFT. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim places a stock within the portfolio after sending a trade alert his charitable foundation buys or sells a stock. When he sells a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
In this illustration, the Palo Alto Networks logo is seen on a smartphone and within the background.
Rafael Henrique | SOPA images | Light rocket | Getty Images
Palo Alto Networks is rebounding after a brutal earnings selloff in February, and Wall Street analysts say the cybersecurity company’s earnings next week will justify its resurgence.
