Why Palo Alto Networks (PANW) Spiked on Friday

NEW YORK (TheStreet) -- Palo Alto Networks (PANW) soared on Friday afternoon on a mistrial ruling in its infringement suit with Juniper Networks (JNPR).

By market close, shares had added 11% to $77.12. Trading volume of 7.6 million was more than four times its three-month daily average.

In a statement, the enterprise security provider said Honorable Judge Sue L. Robinson of the U.S. District Court of Delaware had declared the mistrial due to the jury being unable to reach a verdict.

"From the outset, we said we would vigorously defend the Company against Juniper's lawsuit," said Palo Alto CEO Mark McLaughlin. "We continue to stand by our position that we do not infringe on their patents and are committed to delivering innovation and providing the network security market with disruptive technologies."

Juniper Networks filed the suit against after it alleged Palo Alto's firewalls had infringed upon intellectual property developed by its founders while still working at NetScreen, a company later acquired by Juniper in 2004.

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TheStreet Ratings team rates PALO ALTO NETWORKS INC as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate PALO ALTO NETWORKS INC (PANW) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 46.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • PANW has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, PANW has a quick ratio of 2.00, which demonstrates the ability of the company to cover short-term liquidity needs.
  • PANW's share price has surged by 25.15% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Communications Equipment industry. The net income has significantly decreased by 1428.7% when compared to the same quarter one year ago, falling from -$2.61 million to -$39.95 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, PALO ALTO NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.

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TheStreet Ratings team rates JUNIPER NETWORKS INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate JUNIPER NETWORKS INC (JNPR) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

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Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JNPR's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 11.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • JNPR's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, JNPR has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
  • JUNIPER NETWORKS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, JUNIPER NETWORKS INC increased its bottom line by earning $0.86 versus $0.36 in the prior year. This year, the market expects an improvement in earnings ($1.55 versus $0.86).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 58.6% when compared to the same quarter one year prior, rising from $95.70 million to $151.80 million.
  • Net operating cash flow has significantly increased by 152.14% to $390.40 million when compared to the same quarter last year. In addition, JUNIPER NETWORKS INC has also vastly surpassed the industry average cash flow growth rate of 19.07%.

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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