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Bear of the Day: Palo Alto Networks (PANW)

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Palo Alto Networks (PANW - Free Report) offers a network security platform that allows enterprises, service providers, and government entities to secure their networks.  The stock is a Zacks Rank #5 (Strong Sell) and the Bear of the Day after peers reported poor earnings over the last week.

Palo Alto has a market cap of $11 Billion and has yet to turn a profit. The stock sports a Zacks Style Score of “F” in Value and “B” in Growth. The valuation is concerning as recent earnings from peers FireEye and CyberArk disappointed investors.

FireEye (FEYE - Free Report) results

Palo Alto is the best in breed of the network security space, but that can’t bring a stock higher when the rest of the space is headed lower. FireEye reported earnings on august 4th and cut Q3 guidance to -$0.32 to -$0.30 verse the -$0.24 expected. The company’s lower outlook was a result of weaker than expected Q2 billings.

CyberArk (CYBR - Free Report) results

CyberArk actually bet by 9 cents, beat in revenue, and raised fiscal year guidance. CEO Ehud Mokady had some comments on the quarter: "As we move into the second half of the year, we plan to continue making thoughtful investments including enhancing our technology platform and expanding market presence.”

Investors sold the news and the stock 7% lower.

PANW reaction

Before FireEye and CyberArk reported, Palo Alto was trading over $132. Now after the earnings news has settled in, the stock is at $125, 5% lower. We won’t see the company report until August 30th and estimate revisions are not looking good.

Estimate Revisions

For fiscal year 2016 estimates have come down 4% over the last 90 days. However, the real concern is fiscal year 2017, as estimate revisions have come down almost 20%, from -$0.94 to -$1.17. be on the lookout for a cut to guidance and more pressure on the stock. 

A Better Option

Arris International (ARRS - Free Report) is a Zacks Rank #1 (Strong Buy) that is an IP, video and broadband technology company. The Company offers video infrastructure, delivery networks, home and business connectivity and devices as well as related products.

The company has a market cap of $5.2 Billion and a Forward PE of 11. The stock sports Zacks Style Scores of “B” in Value. Over the last 90 days, estimates for fiscal year 2016 and 2017 have been revised higher. For 2016, estimates have been raised from $2.40 to $2.57 and for 2017 they have also gone higher, from $2.78 to $2.91. The company next reports on October 26th.

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