Shares in Internet security company Palo Alto Networks (PANW) have ample upside potential, say many Wall Street analysts predicting strong years ahead after the company released its first-quarter results late Monday.
Santa Clara, Calif.-based Palto Alto Networks reported first-quarter earnings of 35 cents per share, higher than the Street view of 32 cents per share, and revenue of $297.2 million vs. the analyst estimate for $284.4 million.
Its guidance for the second quarter, including an expected revenue range of $314 million to $318 million, implies growth of 44% to 46%, year over year. Because much of that revenue is recurring, indicating a strong trajectory through fiscal 2017, analysts say the stock is poised for more growth. It expects non-GAAP earnings of 38 cents to 39 cents for the second quarter.Palo Alto Networks is attributing the "very strong start" to its fiscal 2016 to its "integrated and automated enterprise security platform that delivers prevention capabilities at every step in the cyber-attack lifestyle," said CEO Mark McLaughlin in a statement.
Citing improving cash flow and no signs of a slowdown in momentum among other positive factors, Wall Street analysts are maintaining positive ratings and improving their price targets on Palo Alto Networks. They say, despite concerns of an overall slowdown in the security market, demand for Palo Alto Networks' cyber security services remains strong.
In more detail, here's what Street analysts had to say:
Deutsche Bank analyst Karl Keristead (Buy, $170.97 price target)
"Even with a below-normal beat against the 2QF16 revs guidance of $314- $318m, PANW would still post another 50%+ growth quarter. Hiring, especially in sales, has ramped over the last two quarters (1QF16 headcount was up 59% with 360+ adds), improving our confidence in the out-quarter revs growth. By product, WildFire grew its customer count by 100%+ but still only has a penetration rate of ~30% into PANW's total customer base. The average billings duration actually declined a bit, making the billings growth rate of 61% even more impressive. The only negative was that PANW posted its first-ever sequential decline in product revs, but the Street is likely to cut PANW some slack given the out-performance in 4QF15. This print is likely to improve overall investor sentiment towards the security stocks and lead more investors to wonder if FEYE's miss was more company-specific."
"Given strong cash collections one quarter after the big 4QF15 quarter, PANW's OCF of $147m was well above our $124m estimate and the gap between nonGAAP OM of 17% and FCF margins of 43% actually widened. While PANW reaffirmed its FY16 FCF margin guidance of 30%+, this is looking increasingly conservative and we maintain our estimate of 35%. The dream scenario of 40% FCF margins in FY16 now looks doable and PANW appears on track to meet its non-GAAP OM target of 22%-25% by 4QF16."