Palo Alto Networks Analysts Downgrade Stock After Big Revenue Miss

Three analysts said weaker-than-expected revenue and guidance bodes poorly for the cybersecurity company.
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Shares of Palo Alto Networks  (PANW) - Get Report plunged Tuesday following a weak earnings report issued after the close on Monday, with several analysts subsequently downgrading the security software maker’s stock.

Palo Alto Networks reported much weaker-than-expected sales growth for the fiscal second quarter and also lowered its annual forecast.

At last check, Palo Alto Networks shares were trading down 15.22% to $201.20.

“For the second straight quarter, product revenue came in below expectations, but this time total revenue also missed,” JPMorgan analyst Sterling Auty wrote in a report in which he lowered his rating from overweight to neutral and decreased his share-price target from $284 to $236.

“Management maintains [the revenue miss and the outlook cut are] the lingering effect of sales incentives in fiscal 2019 impacting core product while next generation billings/products grow,” Auty wrote. “But the reduced outlook is impacting our cash flow forecast, and it could take two to three quarters for investors to feel more comfortable with the product outlook being consistently able to grow again.”

Deutsche Bank analyst Karl Keirstead sees problems with the company’s firewall product. “This print, highlighted by product growth of negative 9% and guidance for … sluggish growth in the next two quarters, was so bad that it seems highly unlikely to us that the firewall revenue deceleration/recovery is all about internal sales incentives,” he wrote in a report. Keirstead lowered his rating on the stock from buy to hold and cut his share-price target from $275 to $210.

“A slowdown of this magnitude feels more like a network firewall hardware problem that is likely to persist throughout 2020,” Keirstead said.

BMO Capital Markets analyst Keith Bachman lowered his rating to market perform from outperform and emphasized Palo Alto Network’s revenue shortfall. “Product revenue continues to disappoint, and we believe that ongoing risk remains based on guidance for the second half of the fiscal year.”

Bachman expects the stock to remain range-bound and lowered his price target from $248 to $220.