Palo Alto Networks has reassured analysts with its latest earnings report after a brief panic over its unusual timing. Its longer-term growth guidance was boosting other stocks in the cybersecurity sector on Monday.
Palo Alto’s (ticker: PANW) shares were up 16% in early trading on Monday to $243.23. The stock had fallen about 18% in the run-up to Friday’s report following the announcement of the timing of the release and earnings call.
Zscaler stock (ZS) is up 6.4%, and CrowdStrike stock (CRWD) is up 4.9%.
Palo Alto’s late-Friday report didn’t bring the bad news that was feared, with commentators having speculated that news was on the way about major organizational changes.
CEO Nikesh Akora reiterated in an earnings call that the unusual timing was due to the need to disclose its financial information ahead of a sales conference that took place on Sunday, as well as giving analysts’ additional time to digest longer-term guidance issued alongside the quarterly report.
The company said it expects a 17%-19% compound annual growth rate in both revenue and billings over the next three years.
The positive outlook is a relief for the cybersecurity sector as stocks including Palo Alto have recently reacted sharply to any signs of a potential hit to business from macroeconomic uncertainty.
Analysts at Evercore noted that Palo Alto’s momentum in large deals was healthy, with the number of sales worth more than $20 million up 42% from the same period the prior year.
Evercore’s Peter Levine raised his target price on the stock to $295 from $240, and kept an Overweight rating.
There were some signs of macroeconomic pressure in the earnings as Palo Alto said customers were increasingly opting for deferred payment plans and consolidating their spending. However, that didn’t dampen enthusiasm for the report.
“The company [Palo Alto] introduced long-term guidance that was better than feared,” wrote Guggenheim’s John DiFucci.
DiFucci highlighted Palo Alto’s guidance for annual free-cash-flow margin of more than 37% from its fiscal 2024 year through to fiscal 2026. He said that was particularly impressive as Palo Alto signs more deals that are not billed entirely upfront, with deferred subscription payments suppressing free cash flow.
The Guggenheim analysts kept a Neutral rating on Palo Alto stock with no price target.
Write to Adam Clark at adam.clark@barrons.com
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