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Why Palo Alto Networks (PANW) Plunged in the Last 1 Week?

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It has been over a week since Palo Alto Networks Inc. (PANW - Free Report) reported second-quarter fiscal 2017 results. Following the release, the stock has declined significantly. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.

Palo Alto Shares Plunged

Palo Alto Networks reported its quarterly numbers after the market closed on Feb 28, following which its shares have plunged approximately 25% so far. The company reported wider-than-expected loss in the second quarter. Revenues also missed the Zacks Consensus Estimate and also fell short of the guidance range, primarily due to weak go-to-market execution.

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise | Palo Alto Networks, Inc. Quote

Furthermore, the decelerating revenue growth trend makes investors slightly cautious about Palo Alto's near-term performance. Notably, the company has witnessed over 50% growth in quarterly revenues for nearly two years except in the past two quarters. During first- and second-quarter fiscal 2017, the year-over-year growth rates were 34% and 26.3%, respectively.

Moreover, Palo Alto’s revenue growth guidance range of 17–20% for third-quarter fiscal 2017 has increased concerns about its growth prospects. Additionally, the company’s billings growth rate of 22% during fiscal second quarter was also much lower than the previous two quarters’ growth rates of 33% and 45%.

Notably, in the year so far, the stock has been down roughly 8.4%, underperforming the Zacks categorized IT Services industry’s gain of 5.3%.

Downward Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for the third quarter and fiscal 2017 witnessed downward revisions. Four of the six analysts covering the stock revised their estimates downward for fiscal third quarter, while five of the seven analysts have made downward estimate revision for fiscal 2017.

For fiscal third quarter, the Zacks Consensus Estimate is currently pegged at a loss of 42 cents per share, wider than the loss of 29 cents projected 30 days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at a loss of $1.28 cents per share compared with a loss of $1.04 projected 30 days ago.

Bottom Line

Though near-term prospects of Palo Alto Networks look gloomy, we believe that the company’s consistent product refreshes and acquisitions synergies will boost revenues over the long run. Also, customer wins, along with expansion of the existing customer base, are other positives. The company is also keen on expanding its cloud exposure, which, we believe will prove to be a primary growth factor.

Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some stocks in the IT-Services space worth considering are CDW Corporation (CDW - Free Report) , Computer Task Group, Inc. and Wix.com Ltd. (WIX - Free Report) , all carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CDW has witnessed upward estimate revisions in the last 30 days. It surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 5.85%.

Computer Task Group has witnessed upward estimate revisions in the last 30 days. It surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 35.00%.

Wix.com has an expected long-term EPS growth rate of 20% and surpassed the Zacks Consensus Estimate last quarter with a positive surprise of 25.00%.

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