Palo Alto Networks' Near-Term Just Got Messier: What 10 Analysts Are Saying

Benzinga - by Avi Kapoor, Benzinga Staff Writer.

Shares of Palo Alto Networks Inc (NASDAQ: PANW) tanked in early trading on Wednesday, even after the company reported a revenue beat for its fiscal second quarter.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release.

• Piper Sandler analyst Rob Owens downgraded the rating from Overweight to Neutral, while slashing the price target from $350 to $300.
• RBC Capital Markets analyst Matthew Hedberg maintained an Outperform rating, while reducing the price target from $420 to $365.
• Mizuho Securities analyst Gregg Moskowitz reaffirmed a Buy rating, while trimming the price target from $405 to $350.
• BMO Capital Markets analyst Keith Bachman reiterated an Outperform rating, while cutting the price target from $378 to $327.
• Oppenheimer analyst Ittai Kidron maintained a Perform rating, while reducing the price target to $305.
• Truist Securities analyst Joel Fishbein reiterated a Buy rating, while trimming the price target of $385 to $350.
• Wedbush analyst Daniel Ives reaffirmed an Outperform rating, while lowering the price target from $425 to $375.
• KeyBanc Capital Markets analyst Eric Heath maintained an Overweight rating, while reducing the price target from $390 to $380.
• Stifel analyst Adam Borg reiterated a Buy rating, while trimming the price target of $410 to $330.
• JMP Securities analyst Trevor Walsh reaffirmed a Market Outperform rating and price target of $380.

Piper Sandler: “PANW is offering certain solutions to customers for free as they wait-out competitor contracts to expire, in return for 3-5 year commitments,” Owens said in his downgrade note.

The analyst expects these deals to impact top-line results over the next 12 to 18 months and eliminate $600 million from billings estimates in the back half of 2024, although management expects the company to return to mid-to-high double-digit billings growth in the second half of 2025. “While much of this will clearly be on the come, it will have a negative impact on both growth rates and multiple in the short to medium term,” he added.

RBC Capital Markets: “Results were in-line as management noted the demand environment ex-US Fed remains unchanged,” Hedberg wrote in a note.

He added, however, that management lowered billings and revenue guidance announcing an “Accelerated Platformization and Consolidation” strategy that translates to a near-term hit on billings and revenues by offering around six months of free services to customers.

BMO Capital Markets: Palo Alto’s guidance is “disappointing on many levels,” Bachman said. “We note that there is execution risk associated with increased bundling while maintaining or improving growth longer-term, and ability to meet FCF targets despite weaker near-term billings,” he added.

The company’s bundling strategy could also “generate multiple pressure across the sector,” the analyst further stated.

Mizuho Securities: “F2Q next-gen Security ARR and OMs showed meaningful upside, but billings were only in line,” Moskowitz wrote. Management also significantly lowered their full-year guidance for billings, he added.

“While we fully acknowledge a messier near-term story, we remain bullish on PANW's improving mix shift toward higher-growth recurring revenue,” the analyst further stated.

Oppenheimer: Palo Alto’s quarterly results were “solid,” with Next-Gen Security (NGS) annual recurring revenue (ARR) growing 50% year-on-year to $3.49 billion and “strong adoption of SASE, XSIAM, and multiple Prisma Cloud modules,” Kidron said.

“However, a dedicated shift toward platform deals and subsequent GTM actions are expected to weigh on revenue/billings growth for the next 12-18 months” and there is uncertainty around whether “the magnitude long-term share gains/revenue re-acceleration is worth the near-term headwind."

Truist Securities: Palo Alto’s quarterly results were “mixed,” with revenue in-line with guidance and billings below expectations, “driven by softer spend in the federal sector and a shift to platformization,” Fishbein said.

“PANW noted cybersecurity spending fatigue, which caused it to lay out a change in competitive strategy that looks to accelerate platformization of products over a ramped time period, which will negatively impact billings & revenue growth near term, but long term will help reaccelerate top line growth and consolidate more spend with the company,” he added.

Wedbush: “Last night will go down as a brutal night to forget for the bulls (and us) as PANW lowered guidance for FY24 with billings headwinds now abound as Nikesh and the team transition to the next phase of the growth story with the platform approach front and center,” Ives wrote in a note.

“We fully expect many peers to throw in the white towel on PANW this morning as after a Cinderella story the last few years the company now faces some near-term growth challenges which will result in multiple contraction and worries if numbers are de-risked,” he added.

KeyBanc: The company reported mixed fiscal second-quarter results and meaningfully lowered its billings and revenue guidance, Heath said.

“Mgmt. attributed F2Q weakness due to softness in Fed, and in particular the Thunderdome project that didn't materialize as expected, as well as continued customer preference for flexible billings terms,” he added.

Stifel: Palo Alto’s stock came under significant pressure in reaction to its results and “unexpected pricing strategy” and its shares are likely to “trade sideways in coming quarters,” Borg said.

However, that the company “remains well-positioned as a cybersecurity platform consolidator" and has several drivers to sustain double-digit top-line growth and improve profitability.

JMP Securities: The company reduced the billings and revenue outlook for the fiscal third quarter and guide to non-GAAP earnings of $1.24-$1.26 per share, lower than the consensus of $1.29 per share, on revenue of $1.95-$1.98 billion, missing consensus of $2.04 billion, Walsh said.

The guidance for fiscal 2024 showed non-GAAP earnings of $5.45-$5.55 per share, versus consensus of $5.51 per share, on revenue of $7.95-$8.00 billion, short of consensus of $8.2 billion, he added.

PANW Price Action: Shares of Palo Alto Networks declined by 27.16% to $266.64 at the time of publication Wednesday.

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