Palo Alto Networks (PANW) 1st Quarter Earnings: What to Expect

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Cybersecurity company Palo Alto Networks (PANW) will report first quarter fiscal 2019 earnings results after Thursday’s closing bell.

As with other tech stocks during the recent selloff, PANW has taken a hit, falling almost 20% over the past thirty days. Investors want to know when share prices will stabilize and commence a move upward. Despite intense competition from the likes of Cisco (CSCO), Check Point (CHKP) and Fortinet (FTNT), Palo Alto continues to take market share gains. And its outlook indicates more of the same strength going forward, according to Morgan Stanley analyst Keith Weiss.

In a recent note to investors, Weiss advised now would be a good time to buy the stock. Citing the company’s relatively low valuation compared to its peers, Weiss, who rates the stock at Overweight with a $266 price target, contends Palo Alto has room for multiple expansion driven by potential to grow free-cash flow substantially. Weiss’ Price target assumes potential upside of 60% from current levels. But the company must first do its part on Thursday and report a top and bottom line beat.

For the three months that ended October, Wall Street expects the California-based company to earn $1.05 per share on revenue of $631.89 million. This compares to the year-ago quarter when earnings came to 74 cents per share on revenue of $505.5 million. For the full year, ending July 2019, earnings are projected to rise 26% year over year to $5.03 per share, while full-year revenue of $2.78 billion would rise 22% year over year.

Thanks to several ground-breaking next-generation security products, Palo Alto continues to enjoy rapid growth. Not only is the company acquiring new customers at healthy rates, it is also increasing penetration of its existing customers. And these trends were evident in the fourth quarter, during which, aside from a top and bottom line beat, the company demonstrated strength in several key areas.

Product revenue grew impressively at 26% year over year to $267.6 million, topping the company’s own guidance for growth of 16% and 17%. Subscription and support revenue climbed 31.6% to $390.5 million, while billings jumped 29.4% to $868.1 million, also above guidance for a range of $815 million to $830 million. Just as impressive, Q4 deferred revenue rose 33% to $2.4 billion, while the company generated $278 million in operating flow and $252.5 million in free cash flow.

All told, Palo Alto business has begun to demonstrate it is more than just an impressive revenue story. On Thursday analysts will look to see the extent to which the company can sustain these fundamental improvements, particularly with the billings number, which, in the software subscription business, underscores the strength of future revenue. Meanwhile, with the stock down almost 20% in thirty days, it would seem the risk-versus-reward is now more favorable.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: PANW

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