It has been about a month since the last earnings report for Palo Alto Networks (PANW Quick QuotePANW - Free Report) . Shares have added about 16.9% 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 catalysts.

Palo Alto Outpaces Q3 Earnings & Revenue Expectations

Palo Alto Networks reported better-than-expected results in the third quarter of fiscal 2023. The company reported non-GAAP earnings of $1.10 per share, beating the Zacks Consensus Estimate of 92 cents. The bottom line improved 83% from the year-ago quarter’s non-GAAP earnings of 60 cents per share.

Palo Alto’s fiscal third-quarter revenues of $1.72 billion surpassed the Zacks Consensus Estimate of $1.71 billion. The top line grew 24% from the year-ago reported figure. The top line was aided by several deal wins and the increased adoption of Palo Alto’s Next-Generation Security platforms, driven by the hybrid work culture and the heightened need for stronger security.

The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.

Quarterly Details

Product revenues increased 10% year over year to $388.1 million and contributed to 22.6% of total revenues. The company’s subscription and support revenues, which accounted for 77.4% of total revenues, improved 28.7% to $1.33 billion.

Billings increased 26% to $2.26 billion. Deferred revenues at the end of the fiscal third quarter were $4.15 billion. Palo Alto’s remaining performance obligation climbed to $9.2 billion, reflecting a year-over-year increase of 35%.

Palo Alto’s next-generation security annualized recurring revenues were $2.57 billion in the reported quarter compared with $2.33 billion in the previous quarter and $1.61 billion in the year-ago quarter.

Non-GAAP gross profits increased 29.7% to $1.31 billion. The non-GAAP gross margin expanded 320 basis points (bps) to 72.9%, primarily driven by a higher software mix, a reduction in supply-chain costs and some efficiencies in customer support.

The non-GAAP operating income rose 60.8% to $406.7 million. Meanwhile, the non-GAAP operating margin expanded 540 bps to 23.6%.

Balance Sheet & Cash Flow

Palo Alto exited the fiscal third quarter with cash, cash equivalents and short-term investments of $3.96 billion, up from $3.35 billion at the end of the previous quarter. As of Apr 30, 2023, the company had long-term operating lease liabilities of $264.5 million.

PANW generated operating cash flow of $432.1 million and non-GAAP adjusted free cash flow of $400.9 million in the fiscal third quarter. The non-GAAP adjusted free cash flow margin came in at 23.3%.

Raised FY23 Guidance

Palo Alto’s management raised fiscal 2023 guidance. The company now projects revenues between $6.88 billion and $6.91 billion for fiscal 2023 instead of its previous forecast in the band of $6.85-$6.91 billion. This suggests top-line growth of 25-26% from the fiscal 2022 level.

Total billings of PANW are now estimated in the range of $9.18-$9.23 for fiscal 2023, indicating a year-over-year increase of 23-24%. Previously, billings were expected in the $9.10-$9.20 billion band, which suggested a year-over-year increase of 22-23%.

Palo Alto projects non-GAAP earnings in the $4.25-$4.29 per share band compared with the prior guided range of $3.97-$4.03 per share. The non-GAAP adjusted free cash flow margin forecast has also been raised from the range of 36.5-37.5% to the 37.5-38.5% band for fiscal 2023.

For the fourth quarter of fiscal 2023, Palo Alto projects revenues between $1.937 billion and $1.967 billion, suggesting year-over-year growth of 25-27%.

Total billings are anticipated between $3.15 billion and $3.20 billion, indicating an increase of 17-19% from the year-ago quarter. Non-GAAP earnings are projected in the range of $1.26-$1.30 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 9.22% due to these changes.

VGM Scores

At this time, Palo Alto has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Palo Alto has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Palo Alto is part of the Zacks Internet - Software industry. Over the past month, Twilio (TWLO Quick QuoteTWLO - Free Report) , a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended March 2023 more than a month ago.

Twilio reported revenues of $1.01 billion in the last reported quarter, representing a year-over-year change of +15%. EPS of $0.47 for the same period compares with $0 a year ago.

For the current quarter, Twilio is expected to post earnings of $0.29 per share, indicating a change of +363.6% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.3% over the last 30 days.

Twilio has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.