Palo Alto Networks extends recent stock rally on solid quarterly earnings
Wall Street’s enthusiastic reaction Tuesday to solid earnings from Palo Alto Networks reinforced our belief that the cybersecurity stock is getting overextended. Shares advanced more than 8% to roughly $372 each in afternoon trading after Palo Alto late Monday posted better-than-expected fiscal 2024 fourth-quarter earnings and revenue, and delivered an upbeat outlook. The roughly 27% rally since Aug. 5 brings the stock just a few dollars shy of its record-high close of nearly $377 on Feb. 9, clawing back the fiscal Q2 disaster that sent shares to a 2024 low on Feb. 21. Jim Cramer described the recent move as “parabolic.” However, that doesn’t mean he’s any less bullish on Palo Alto in the long run. In fact, the Club raised its price target to $380 per share from $360 on Monday evening. We reiterated our 2 rating on the stock in recognition of its stellar move. Jim has even suggested in recent sessions that taking some profits might not be a bad idea. Here’s an excerpt from our Club analysis of Palo Alto’s numbers: The RPO (remaining performance obligation) guide was a bit light. But it was more than offset, in our view, by management’s better-than-expected sales, earnings, and recurring revenue outlook for the both the current quarter (fiscal 2025 Q1) and full-year fiscal 2025. To deemphasize billings results, which represent the total amount of dollars invoiced in a given period, and put more emphasis on RPO, which represents the total value contracted during the quarter, management has stopped providing billings guidance altogether. The team is also now providing an outlook for annual recurring revenue (ARR). PANW YTD mountain Palo Alto Networks YTD Wall Street analysts echoed our bullish sentiments. At least two dozen research firms — including Wells Fargo, Morgan Stanley, JPMorgan, and Goldman Sachs — raised their price targets on Palo Alto, according to FactSet data. Wells Fargo, in particular, went to $416 per share from $385 — noting that Palo Alto’s “platformization” bundling of offerings continues to “gain traction.” Palo Alto reported over 1,000 platformization customers in its fiscal fourth quarter, adding more than 90 since the previous quarter. Management also reiterated their goal of reaching $15 billion in annual recurring revenue in fiscal year 2030. Wells Fargo estimated that it “would require 2,500-3,500 platformization customers, or add an average of 335 new customers per year to reach the midpoint, which is roughly what they added in fiscal year 2024.” During the post-earnings call, CEO Nikesh Arora highlighted Palo Alto’s progress with platformization as well. “I know there was significant consternation around our platformization strategy six months ago,” Arora said, likely referencing the stock’s post-earnings selloff after management announced the pivot back in late February. He added: “All I want to say is, I wish we had started down that path sooner. The amount of interest and activity around it has certainly been heartening and shows promise.” Morgan Staley thinks Palo Alto will continue to see revenue growth. “We think the trough is now behind us and see topline growth accelerating throughout FY25,” analysts said in support of raising their price target to $390 from $360. To be sure, not everyone on Wall Street is convinced that Palo Alto has significant growth ahead. UBS analysts, who reiterated their hold rating on shares, said that “it’s hard to justify upside here,” given the low-to-mid teens growth guidance for RPO. Analysts increased their price target to $355 per share from $345. But that represents a nearly 5% decline from current levels. (Jim Cramer’s Charitable Trust is long PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Nikesh Arora of the United States on the first hole during the third round of The Alfred Dunhill Links Championship at The Old Course on October 02, 2021 in St Andrews, Scotland.
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Wall Street’s enthusiastic reaction Tuesday to solid earnings from Palo Alto Networks reinforced our belief that the cybersecurity stock is getting overextended.
