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Can Palo Alto Networks (PANW) Turn It Around to Start 2017?
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Despite a solid market environment, shares of Palo Alto Networks (PANW - Free Report) have not responded very well since their last earnings report. In the time frame, the stock has lost almost 20% of its value and it has easily underperformed the market.
Will the recent negative trend continue leading up to their next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Palo Alto Networks (PANW - Free Report) Q1 Loss Widens; Revenues Miss
Palo Alto Networks Inc. reported lower-than-expected first quarter of fiscal 2017 results.
Palo Alto Networks reported adjusted loss per share (excluding amortization and other one-time items but including stock-based compensation), on a proportionate tax basis, of $0.58 per share. The figure was significantly higher than the Zacks Consensus Estimate of a loss of $0.27 per share. The company had suffered a loss of 36 cents in the year-ago quarter.
Quarter Details
Though Palo Alto Networks’ revenues of $398.1 million surged 34% year over year, it missed the Zacks Consensus Estimate of $400 million. The year-over-year improvement in revenues was primarily backed by strength in the network security market, a strong product line-up and deal wins.
Product revenues jumped 11% to $163.8 million. The company saw a 57% surge in subscription and support revenues ($234.3 million). SaaS-based subscription revenues climbed 65% from the year-ago period. Support revenues increased 49% year over year.
Also, customer wins coupled with expansion of the existing customer base supported quarterly revenues. Moreover, billings jumped 33% year over year to $516.9 million during the quarter.
Palo Alto Networks’ gross margin increased 120 basis points (bps) on a year-over-year basis to 74.6%, primarily backed by growth in both product recurring subscription and support gross margins.
The company reported an adjusted operating loss of $38.7 million, which increased from a loss of $21.8 million suffered a year ago. GAAP operating loss during the quarter came in at $49.9 million compared with a loss of $32 million reported in the year-ago quarter. Higher operating expenses (up approximately 38.7% year over year) also impacted operating results.
The company’s adjusted net loss was $51.9 million, wider than a loss of $31.6 million reported last year. On a GAAP basis, net loss was $61.8 million compared with a loss of $39.9 million reported in the year-ago quarter.
Guidance
For the second quarter of fiscal 2017, Palo Alto Networks expects revenues in the range of $426 million to $432 million, up 27% to 29% year over year. The company expects non-GAAP earnings per share within $0.61 to $0.63 (excluding stock-based compensation expenses).
The company continues to expect fiscal 2017 non-GAAP earnings per share to be in the range of $2.75 to $2.80. Revenues for the same period are expected to grow in the range of 30% to 31%.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been two revisions higher for the current quarter compared to zero lower. However, the company has seen a bit more weakness in its full year consensus estimate, while the earnings history for PANW is particularly bad:
At this time, Palo Alto Networks' stock has a great Growth score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stocks has an aggregte VGM score of 'C', so it is just an OK stock from a fundamental look. If you aren't focused on one strategy, this score is the one you should be interested in, along with the Zacks Rank.
Outlook
While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. Interestingly, shares of the company have a Zacks Rank # 3 (hold), so we are expecting just an in-line return from PANW in the next few months.
So although Palo Alto Networks definitely has some nice catalysts going forward, we think the company is just a hold right now. The stock has a poor record in earnings season, and it has just moved out of 'sell' territory too. So while the future might not be as bad as the recent past for this stock, it doesn't look to be a spectacular start to 2017 either.
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Can Palo Alto Networks (PANW) Turn It Around to Start 2017?
Despite a solid market environment, shares of Palo Alto Networks (PANW - Free Report) have not responded very well since their last earnings report. In the time frame, the stock has lost almost 20% of its value and it has easily underperformed the market.
Will the recent negative trend continue leading up to their next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Palo Alto Networks (PANW - Free Report) Q1 Loss Widens; Revenues Miss
Palo Alto Networks Inc. reported lower-than-expected first quarter of fiscal 2017 results.
Palo Alto Networks reported adjusted loss per share (excluding amortization and other one-time items but including stock-based compensation), on a proportionate tax basis, of $0.58 per share. The figure was significantly higher than the Zacks Consensus Estimate of a loss of $0.27 per share. The company had suffered a loss of 36 cents in the year-ago quarter.
Quarter Details
Though Palo Alto Networks’ revenues of $398.1 million surged 34% year over year, it missed the Zacks Consensus Estimate of $400 million. The year-over-year improvement in revenues was primarily backed by strength in the network security market, a strong product line-up and deal wins.
Product revenues jumped 11% to $163.8 million. The company saw a 57% surge in subscription and support revenues ($234.3 million). SaaS-based subscription revenues climbed 65% from the year-ago period. Support revenues increased 49% year over year.
Also, customer wins coupled with expansion of the existing customer base supported quarterly revenues. Moreover, billings jumped 33% year over year to $516.9 million during the quarter.
Palo Alto Networks’ gross margin increased 120 basis points (bps) on a year-over-year basis to 74.6%, primarily backed by growth in both product recurring subscription and support gross margins.
The company reported an adjusted operating loss of $38.7 million, which increased from a loss of $21.8 million suffered a year ago. GAAP operating loss during the quarter came in at $49.9 million compared with a loss of $32 million reported in the year-ago quarter. Higher operating expenses (up approximately 38.7% year over year) also impacted operating results.
The company’s adjusted net loss was $51.9 million, wider than a loss of $31.6 million reported last year. On a GAAP basis, net loss was $61.8 million compared with a loss of $39.9 million reported in the year-ago quarter.
Guidance
For the second quarter of fiscal 2017, Palo Alto Networks expects revenues in the range of $426 million to $432 million, up 27% to 29% year over year. The company expects non-GAAP earnings per share within $0.61 to $0.63 (excluding stock-based compensation expenses).
The company continues to expect fiscal 2017 non-GAAP earnings per share to be in the range of $2.75 to $2.80. Revenues for the same period are expected to grow in the range of 30% to 31%.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been two revisions higher for the current quarter compared to zero lower. However, the company has seen a bit more weakness in its full year consensus estimate, while the earnings history for PANW is particularly bad:
PALO ALTO NETWK Price and EPS Surprise
PALO ALTO NETWK Price and EPS Surprise | PALO ALTO NETWK Quote
VGM Scores
At this time, Palo Alto Networks' stock has a great Growth score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stocks has an aggregte VGM score of 'C', so it is just an OK stock from a fundamental look. If you aren't focused on one strategy, this score is the one you should be interested in, along with the Zacks Rank.
Outlook
While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. Interestingly, shares of the company have a Zacks Rank # 3 (hold), so we are expecting just an in-line return from PANW in the next few months.
So although Palo Alto Networks definitely has some nice catalysts going forward, we think the company is just a hold right now. The stock has a poor record in earnings season, and it has just moved out of 'sell' territory too. So while the future might not be as bad as the recent past for this stock, it doesn't look to be a spectacular start to 2017 either.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 days. Click to get this free report >>