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Palo Alto Networks Is Too Good to Be Left Alone

NEW YORK (TheStreet) -- Very few were willing to stick their necks out in support of Palo Alto Networks (PANW) ahead of the company's fiscal third-quarter earnings report.

Well, if you were one of us, pat yourself on the back now that the earnings are out. With the company  performing so well the only question that remains is how long Palo Alto remains an independent company.

Palo Alto shares closed Wednesday at $69.51, up 21% for the year to date and up 33% for the past 52 weeks.

There was no reason to worry about the company. Although Cisco's (CSCO) acquisition of anti-hacking software giant SourceFire (FIRE) raised the threat level against Palo Alto, it was going to take a while before Cisco disrupted Palo Alto's above-average free cash flow margins, which were impressive for a relatively young growth company.

Before reporting earnings Wednesday, shares were trading almost 30% below the stock's all-time high to $80.84 on March 18. All told, Palo Alto was an attractive company with minimal risk. Upon posting a revenue beat and better-than-expected guidance, the market learned what the company's investors have always known -- time to head west.

With better-than-expected results already in hand from Cisco, Rackspace (RAX) and Workday (WDAY), it really was a matter of "by how much" Palo Alto would beat, not "if." With revenue soaring 49% year over year, Palo Alto didn't disappoint.

With strong demand from both its product and services segments, the company reported revenue of $150.7 million, which was good enough for a 3% beat. The Street was looking for revenue of $146.2 million. Palo Alto, which sells firewalls that prevent data breaches and block malware and viruses, benefited from new customer additions.

Excluding one-time items, the company earned 11 cents per share, which also beat Street estimates by 1 cent. Heading into the quarter, there were concerns the company's patent litigation trial against Juniper (JNPR) was going to take a toll on the Palo Alto's bottom line. This assumption was only partially correct.

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