Palo Alto Networks Inc Makes Major Inroads in 5G Cybersecurity

palo alto stockPalo Alto Networks Stock Surges 32% in November

Palo Alto Networks Inc (NYSE:PANW) is the world’s largest cybersecurity company. With a market cap of $28.1 billion, it takes a lot for a stock of this size to make serious gains. But PANW stock has been on a tear in 2020, outpacing the broader market. And there could be more to come.

Currently trading at record levels, Palo Alto Networks stock is up 30.7% year-over-year, approximately 27% year-to-date, and 134% since March. In November, it increased by 32%.

By comparison, the S&P 500 is up 17.6% year-over-year, 13.5% year-to-date, and 67% since March. In November, the S&P 500 increased by 9.8%. First Trust NASDAQ Cybersecurity ETF (NYSE:CIBR), the largest cybersecurity exchange-traded fund (ETF) in the world, is up 30.5% year-over-year, 28.3% year-to-date, and 85% since March. In November, the ETF increased by 14.8%.

November was a busy month for Palo Alto Networks Inc. The company announced plans to acquire Expanse Inc., reported quarterly earnings that topped Wall Street expectations, and launched new 5G security tools.

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Chart courtesy of StockCharts.com

PANW Stock Overview

Based in Santa Clara, CA, Palo Alto Networks sells advanced firewall technology and cybersecurity solutions to more than 75,000 customers in more than 150 countries. Those customers operate in sectors including energy, education, financial services, government, health care, media, and telecommunications. (Source: “About Us,” Palo Alto Networks Inc, last accessed December 8, 2020.)

Many companies in the Fortune 100 and Global 2000 rely on Palo Alto Networks to improve their cybersecurity.

Industry’s First 5G-Native Security Offering

In mid-November, Palo Alto Networks unveiled the industry’s first 5G-native cybersecurity offering. (Source: “Palo Alto Networks Launches Industry’s First 5G-Native Security Offering, Enabling Service Providers and Enterprises to Create New Revenue Streams While Securing 5G,” Palo Alto Networks Inc, November 18, 2020.)

The tools are designed to secure 5G infrastructure and web-connected industrial devices. They allow organizations to make their 5G networks highly secure.

While most people only think about 5G in terms of faster browsing on their mobile phones, 5G technology is also changing the way businesses operate around the world, enabling smart supply chains, autonomous transportation, smart manufacturing, mass adoption of the Internet of things (IoT), and much more.

For 5G to live up to its promise of transforming industries, companies need the confidence that 5G networks and services have enterprise-grade security. And this is what Palo Alto Networks Inc’s 5G-native security offering does.

Plans to Acquire Expanse Inc

Palo Alto Networks retains its status as an industry juggernaut based on its organic growth and its aggressive acquisition strategy. Since 2018, the company has completed 11 major acquisitions.

On November 11, Palo Alto Networks announced plans to acquire Expanse Inc., a leader in attack surface management. The cost was approximately $670.0 million in cash and stock plus $130.0 million in replacement equity awards. (Source: “Palo Alto Networks Announces Intent to Acquire Expanse,” Palo Alto Networks Inc, November 11, 2020.)

Even with more companies moving to the cloud and more employees working remotely, many businesses still leave their critical IT assets vulnerable to attacks.

Expanse’s platform monitors the Internet to “map exposed and untracked assets that comprise customers’ attack surfaces, evaluate and prioritize risk, and provide mitigation.”

Expanse Inc’s customers include Fortune 500 organizations in the financial, health-care, entertainment, and technology sectors, as well as mission-critical government organizations, including the U.S. military.

Strong Q1 2021 Results, Raised Guidance

On November 16, Palo Alto Networks announced that its revenue for the first quarter of fiscal 2021, ended October 31, 2020, increased 23% year-over-year to $946.0 million. (Source: “Palo Alto Networks Reports Fiscal First Quarter 2021 Financial Results,” Palo Alto Networks Inc, November 16, 2020.)

Fiscal first-quarter billings advanced 21% year-over-year to $1.1 billion, while deferred revenue grew 31% year-over-year to $3.9 billion.

The company reported a first-quarter net loss of $92.2 million ($0.97 per share), compared to a first-quarter 2020 net loss of $56.9 million ($0.62 per share).

Adjusted net income for the first quarter was $158.0 million ($1.62 per share), a 50% increase year-over-year.

Business Outlook

For the second quarter of fiscal 2021, Palo Alto Networks Inc expects to report:

  • Revenue in the range of $975.0 million to $990.0 million, representing year-over-year growth between 19% and 21%
  • Billings in the range of $1.17 billion to $1.19 billion, representing year-over-year growth between 17% and 19%
  • Adjusted net income per share in the range of $1.42 to $1.44, up from $1.19 per share in Q2 2020

For the full fiscal year 2021, management raised its guidance and now expects to report:

  • Billings in the range of $5.08 billion to $5.13 billion, representing year-over-year growth between 18% and 19%
  • Revenue in the range of $4.09 billion to $4.14 billion, representing year-over-year growth between 20% and 21%
  • Adjusted net income per share in the range of $5.70 to $5.80, up from $4.88 in fiscal 2020

Analyst Take

Palo Alto Networks Inc is one of the most reliable cybersecurity stocks, with a long history of reporting strong revenue growth, making strategic acquisitions, and rewarding buy-and-hold investors—even during a global pandemic.

The company recently reported another consecutive strong quarter with solid sales and raised its full-year guidance. All of which bodes well for Palo Alto Networks stock in 2021.