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Palo Alto (PANW) Beats Q2 Earnings and Revenue Estimates

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Palo Alto Networks (PANW - Free Report) reported second-quarter fiscal 2021 non-GAAP earnings of $1.55 per share, which surpassed the Zacks Consensus Estimate by 7.64%. Moreover, the bottom line compared favorably with the year-ago quarter’s earnings of $1.19 per share.

The company’s revenues of $1.02 billion improved 25% year over year. The figure also beat the Zacks Consensus Estimate of $986 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 the remote-working trend and heightened need for stronger security. Growing traction in the Prisma and Cortex offerings also acted as a tailwind.

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

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

Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote

Quarterly Details

Product revenues increased 3% year over year to $254.7 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 34% to $762 million.

Further, billings improved 22% year over year to $1.2 billion. Deferred revenues jumped 30% to $4.2 billion.

Region-wise, revenues from the Americas climbed 27% while Europe, the Middle East and Africa, and Asia Pacific revenues rose 24% and 14%, respectively.

Palo Alto continued to see penetration of the Cortex portfolio into large companies. Management noted that about 35% of Palo Alto’s Global 2000 customers and 66% of its Fortune 100 customers have adopted Cortex, highlighting the importance of automation and advanced threat detection.

Notably, Palo Alto ended the second quarter with 9,038 employees, including 176 employees from Expanse.

Palo Alto’s non-GAAP gross margin contracted 110 basis points (bps) on a year-over-year basis to 75.3%. However, non-GAAP operating margin improved 190 bps to 19.8%. Operational efficiencies, and lower travel and event expenses due to COVID-19, which more than offset the incremental investment in headcount, drove operating margin expansion.

Palo Alto exited the fiscal second quarter with cash, cash equivalents and short-term investments of $4 billion compared with $3.22 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 $365 million and free cash flow of $332 million.

Guidance

For third-quarter fiscal 2021, Palo Alto anticipates year-over-year revenue growth of 21-22% to $1.05-$1.06 billion. Billing growth is anticipated between 20% and 22%, ($1.22 billion-$1.24 billion).

Non-GAAP earnings per share are estimated in the range of $1.27-$1.29.

Encouraged by the strong second-quarter performance, the company raised its guidance for fiscal 2021. Palo Alto now projects revenues of $4.15-$4.20 billion, up from the previous guidance of $4.09-$4.14 billion, indicating year-over-year growth of 22-23%. Billing growth is now anticipated between 19% and 20% ($5.13 billion-$5.18 billion).

Palo Alto forecasts fiscal 2021 adjusted earnings between $5.80 and $5.90 per share. Earlier, the company had projected adjusted earnings between $5.70 and $5.80 per share.

Zacks Rank & Stocks to Consider

Palo Alto currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Skyworks Solutions SWKS, MaxLinear, Inc MXL and Shopify Inc. (SHOP - Free Report) , all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Skyworks Solutions, MaxLinear and Shopify is currently pegged at 18.98%, 20% and 32.5%, respectively.

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