It has been about a month since the last earnings report for Palo Alto Networks (
PANW Quick Quote PANW - Free Report) . Shares have added about 8.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Palo Alto due for a pullback? 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 drivers.
Palo Alto Beats Q1 Earnings and Revenue Estimates
Palo Alto Networks reported first-quarter fiscal 2021 non-GAAP earnings of $1.62 per share, which surpassed the Zacks Consensus Estimate $1.34. Moreover, the bottom line compared favorably with the year-ago quarter’s earnings of $1.05 per share.
The company’s revenues of $946 million improved 23% year over year. The figure also beat the Zacks Consensus Estimate of $920.7 million.
The top line was primarily aided by several deal wins and increased adoption of the company’s next-generation security platforms on the rise in remote-working trend and heightened need for stronger security. Growing traction in the Prisma and Cortex offerings also acted as a tailwind.
Product revenues increased 2.6% year over year to $237.3 million and contributed to 25% of the total revenues. The company’s subscription and support revenues, which accounted for 75% of the total revenues, improved 31.1% to $708.7 million.
Further, billings improved 21% year over year to $1.1 billion. Deferred revenues jumped 31% to $3.9 billion.
Palo Alto’s non-GAAP gross margin contracted 80 basis points (bps) on a year-over-year basis to 75.8%. However, non-GAAP operating margin improved 590 bps to 21.7% mainly due to lower operating expenses as a percentage of sales. Operating expenses as a percentage of revenues shrunk 670 bps to 54.1%.
Palo Alto exited the fiscal first quarter with cash, cash equivalents and short-term investments of $3.22 billion compared with $3.75 billion recorded at the end of the previous quarter. The company’s balance sheet does not carry any long-term debt.
During the quarter, it generated cash flow from operations of $534.9 million and free cash flow of $505.3 million.
For second-quarter fiscal 2021, Palo Alto anticipates year-over-year revenue growth of 19-21%, which comes in between $975 million and $990 million. Billing growth is anticipated between 17% and 19%, ($1.17 billion-$1.19 billion).
Non-GAAP earnings per share are estimated in the range of $1.42-$1.44.
For fiscal 2021, the company projects revenue in the $4.09 billion and $4.14 billion, indicating year-over-year growth of 20. Billing growth is anticipated between 18% and 19%, ($5.08 billion-$5.13 billion).
Palo Alto forecasts fiscal 2021 adjusted earnings between $5.70 and $5.80 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted -276.47% due to these changes.
Currently, Palo Alto has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Palo Alto has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.