Palo Alto Networks: Leaders In Cybersecurity

Michael Ambrozewicz profile picture
Michael Ambrozewicz
505 Followers

Summary

  • Palo Alto Networks reported Q3 earnings that beat estimates, but a revised guidance going forward has led to a pullback in share prices.
  • Cybercriminal activity has been at the forefront of global security concerns and has fueled growth in the demand for cybersecurity solutions.
  • An increase in R&D spending complemented with PANW's recent acquisitions bolster the company's leading position in the cybersecurity market and to take advantage of the anticipated surge in demand.

Overview

After sinking below the $200 mark in the beginning of June, Palo Alto Networks (NASDAQ: NASDAQ:PANW) seems to be picking up steam. Can the company sustain this pace to go over-and-above the 52-week high of $260.63? As the dominant player in the cybersecurity market, PANW is in an ideal position in benefiting from increased cybersecurity demand as the digital economy continues to develop. Corporations and governments continue to allocate more capital towards cybersecurity as evidenced by an expected 8.7% surge in worldwide cybersecurity spending in 2019. Strategic acquisitions, healthy gross margins, decreasing operating and spending rates, and continued investment in R&D will continue to generate strong profits over the next 9 to 12 months and will drive share prices to the $270 to $290 as cybersecurity continues to play an increasing role in corporate business.

Source: Yahoo Finance.

Q3 2019 Earnings

Summarizing Q3 2019 earnings:

  • Actual EPS of $1.31 vs. Consensus EPS of $1.25.

  • 28.12% YoY growth in revenue to $726.60 million.

  • 13% YoY growth of billings to $821.9 million.

Despite posting Q3 results that topped expectations, a temporary selloff of PANW shares was triggered after a monotonous Q4 guidance going forward. PANW revised Q4 2019 EPS to $1.41-$1.42 versus the $1.55 consensus. Revenue was also revised down to $795-805 million from $793.81 million. The revised guidance factors in the approximate $15 million net expense related to the proposed Twistlock and PureSec acquisitions, as well as the completed Demisto acquisition. A $2.5 million impact from tariffs was also factored into the guidance stemming from the ongoing US-China trade feud.

Analysts highlighted their primary concern regarding PANW’s shift to annual cloud-based subscriptions, which they expect will curb cash flow and distort billings. The cybersecurity company missed the $872.6 million expected billings by posting $821.9 million in billings and attributed this to shorter-duration billings

This article was written by

Michael Ambrozewicz profile picture
505 Followers
Toronto-based freelance financial analyst.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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