Why There’s Huge Upside In PANW Stock
Palo Alto Networks Inc (NYSE: PANW) shares are trading higher following its quarterly earnings that encouraged investors that it is in a strong position to compete and benefit from the rapidly growing cybersecurity market.
The next-generation security company reported that its non-generally accepted accounting practices (GAAP) earnings increased to $0.50 per share in the fourth quarter from $0.28 per share in the same period a year ago. Its revenue rose by 41% to $400.8 million. (Source; “Palo Alto Networks Reports Fiscal Fourth Quarter and Fiscal Year 2016 Financial Results,” Palo Alto Networks Inc, August 30, 2016.)
Wall Street analysts expected Palo Alto Networks stock to deliver adjusted earnings of $0.50 per share and $390.0 million in revenue. The company’s revenue beat the expectations of analysts.
PANW stock climbed by more than three percent to as much as $146.06 per share in the early trading on Friday, September 2. Will it be able to maintain its upward momentum? I think it can. Here are some compelling reasons why PANW stock would continue to soar.
Palo Alto Networks’ Next-Generation Platform Beats Competitors
During an earnings call with analysts and investors, Palo Alto Networks CEO Mark McLaughlin proudly stated that the company finished its fiscal 2016 with a “very strong” performance. He noted that the company is driving the transformation of the cybersecurity industry from legacy hardware and point products to integrated and automated capabilities that seamlessly work together as a platform.
He said, “Customers are turning to our Next-Generation Security Platform in record numbers to more effectively prevent cyber attacks no matter where their data resides.”
In other words, Palo Alto Networks’ platform is beating its competitors in the industry and gaining significant market share. The company reported that its billings surged 45% to $572.4 million year-over-year.
A Growing Customer Base Bodes Well for PANW Stock
The total number of its customers reached approximately 34,000 globally after adding 2,000 during the fourth quarter. When it comes to the capabilities of its platform, McLaughlin noted that rapid adoption, real usage, high renewal rates ( more than 90% for subscription and around 100% for support) are indications that customers are satisfied and would stick with the company.
Palo Alto Networks added the highest number of clients to its “WildFire” cloud-based analysis service. Its WildFire customer base is now more than 12,500 by the end of the quarter. Its “VM-Series” and “Traps” customers increased to 1,700 and 500, respectively. The company also has approximately 100 customers using its “AutoFocus” and “Aperture” products.
Steffan Tomlinson, the company’s CFO, said that customers are committed to its platform, and that the length of the company’s new contracts on a quantity- and dollar-weighted basis were 2.1 years and 2.7 years, respectively. Its top 25 customers made multi-year purchases and continued to buy additional products, which are delivered as software as a service (SaaS)-like services and generating recurring revenue.
He also stated that the company monetized its customer base and platform better than its competitors. Regarding revenue per customer basis, Tomlinson said Palo Alto Networks is multiples ahead of its rivals.
Robust Financial Outlook for PANW Stock
Palo Alto Networks’ financial outlook for the next quarter and fiscal year 2017 is solid. The management expected its first quarter revenue to be around $396.0 million to $402.0 million, a growth rate of around 33% to 35%. They forecasted that the company would achieve adjusted earnings of around $0.51 to $0.53 per share.
For the full fiscal 2017, the management estimated its non-GAAP earnings in the range of $2.75 to $2.80 per share. The company calculated its earnings outlook for the financial year based on the $1.87-billion consensus revenue estimate.
The Bottom Line for Palo Alto Networks Stock
Palo Alto Networks has demonstrated its ability to grow rapidly and its potential to become the next leader in the cybersecurity industry. The company’s technology is superior, which would serve as a primary driver for its success and could lift Palo Alto stock higher over the long term.
Its double-digit billings and revenue growth rate, as well as its high customer renewal rate, are impressive. PANW stock is an attractive investment that could generate handsome profits for investors.
Sixteen brokerage firms recommended a “buy” rating while 19 gave an “outperform” rating to Palo Alto Networks stocks. The 12-month median price target for PANW stock is $180.00 per share, which is an upside of 28%. The company’s highest price target is $215.00 per share, which is an increase of nearly 53%.