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Bear Of The Day: Palo Alto Networks (PANW)

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Palo Alto Networks (PANW - Free Report) is a Zacks Rank #5 (Strong Sell) and that made me scratch my head. I knew the company reported a good quarter and the stock had an outstanding month of November... so what gives? Let's take a look at why this stock is the Bear Of The Day.

 

Description

 

Palo Alto Networks, Inc. provides cybersecurity platform solutions worldwide. The company provides firewall appliances and software; Panorama, a security management solution for the control of appliances and software deployed on an end-customer's network as a virtual or a physical appliance; and virtual system upgrades, which are available as extensions to the virtual system capacity that ships with physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource locator filtering, malware and persistent threat, laptop and mobile device protection, and firewall, as well as cyberattacks, threat intelligence, and data loss prevention. The company was founded in 2005 and is headquartered in Santa Clara, California.

 

Recent Earnings

 

In Mid November I see the company posting EPS of $1.62 and that was fully $0.28 better than the Zacks Consensus Estimate. That translates to a positive earnings surprise of 20%.

 

I also saw that the company guided EPS for the next quarter and the whole year ahead of the market consensus at that time.

 

This beat stretches the company record to more than 3 years without a miss.

 

Estimates

 

I see the Zacks Consensus Estimate moving higher hor this quarter... but lower for next quarter. That isn't something that you see all the time and it is really the only evidence I can point to as to why this is a Zacks Rank #5 (Strong Sell).

 

The current quarter saw an increase of 10 cents, from $1.33 to $1.43. Next quarter moved from $1.33 to $1.26.

 

That nickel drop coupled with many other stocks seeing estimates increase of late might be enough to send this stock to the lowest Zacks Rank.

 

Valuation

 

Sometimes the Rank can be a little fickle and I don't expect PANW to stay a Zacks Rank #5 (Strong Sell) for very long. When we turn to valuation, we see that 53x forward earnings is a lot and so is 38x price to book. A price to sales multiple of 8x is also a little high, but there was growth of 22% in the most recent quarter.

Chart

 

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