Barclays analysts said the firm likes the setup for Palo Alto Networks (NASDAQ:PANW) into Q3, raising the firm's price target on the stock to $235 from $227, maintaining an Overweight rating.
PANW is set to report earnings on Tuesday, May 23, after the close, and analysts said the firm is positive on the stock into the third quarter and summer as they think billings have moderate upside, NGS ARR can grow 59% in an upside scenario and margins will go higher in FY24.
"We model 3Q billings at ~24% y/y growth to $2,225M as our checks indicated inline results, PANW's benefit of a platform as 'right place, right time,' and Exclusive's largely inline result - we think a good outcome would be the high end of the range at ~$2,250M," analysts wrote.
"We are modeling 3Q NGS ARR base growth of ~55% y/y but could see an upside case of 59% y/y growth based on seasonal trends, Prisma SASE pipeline, initial adoption of XSIAM, and continued growth in PANW's advanced attached subscriptions."
In addition, Barclays believes PANW will see follow-through assuming a solid third quarter, adding that "it sets up well through the summer as 4Q has become increasingly seasonally strong," and because they think FY24 margins could march up as NGS continues to scale.
"We have gotten a couple questions on PANW's discount to FTNT - with PANW's SBC leverage, growing margin story, and NGS mix-shift, we tweak PANW's multiple up to a parity multiple of 23x FY24E FCF taking our PT up to $235, and we continue to like this name," analysts concluded.