Palo Alto Could Still Be a Good Pick -- But Wait a Bit Longer

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Palo Alto's (PANW) - Get Report strong earnings report got investors a nice gain Thursday, but the stock still could be a buy, according to many market participants and observers. 

The stock rose 6.56% to $213 a share Thursday. 

Palo Alto earned an adjusted $1.47 per share for the quarter, surpassing Wall Street's expectations of $1.42. Revenue was $805.8 million, beating expectations of $803 million. Billings were $1.1 billion, rising 22% year-over-year and beating analysts estimates of $995 million. Management guided for current quarter ranges of revenue of $760 million to $770 million, billings of $875 million to $890 million and EPS between $1.02 to $1.04. 

Analysts see room for 20% growth or more in billings, and a long-term expansion of the free cash flow margin and dollar growth. If there has been one concern on the stock, it's that an additional $120 million or so may be added to capital expenditures for the near-term, putting pressure on the free cash flow margin in the immediate. 

Still, "Maybe for the long-term," the California based cyber security firm is a good buy, Sarge Guilfoyle, contributor on TheStreet's premium sister site RealMoney, said. "Free cash flow is a reality going out to 2022, so there are reasons that you can believe in them. Cyber security is an area where corporate America has to invest regardless of the economic condition... but the space probably is more recession resistant than maybe other types of cap-ex businesses." Guilfoyle isn't adding to his position until the stock potential falls a bit from here. 

Analysts were largely positive after earnings print, and recommend owning the stock even after its Thursday run-up. Morgan Stanley analyst Keith Weiss wrote in a Thursday not that the current valuation of 16 times expected free cash flow for the next year makes a "durable" 20% free cash flow growth rate "not reflected in the shares." JPMorgan analyst Sterling Auty raised his price target to $300 from $270 in a Thursday note, valuing the stock at 21 times 2021 expected free cash flow. 

Palo Alto is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells PANW? Learn more now.

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