Palo Alto Networks, Inc. (PANW Quick QuotePANW - Free Report) is scheduled to report its third-quarter fiscal 2025 results on May 20.

Palo Alto Networks projects its fiscal third-quarter revenues in the range of $2.26-$2.29 billion, which suggests a year-over-year increase of 14-15%. The Zacks Consensus Estimate is pegged at $2.27 billion, which implies growth of 14.6% from the year-ago reported figure.

After a two-for-one stock split of PANW stocks on Nov. 20, 2024, the consensus mark for PANW’s fiscal third-quarter non-GAAP earnings has remained unchanged at 77 cents over the past 90 days, which calls for a 16.7% increase from the year-ago quarter’s earnings.

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Palo Alto Networks’ earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 5.5%.

Earnings Whispers for PANW

Our proven model does not conclusively predict an earnings beat for Palo Alto Network this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though PANW currently carries a Zacks Rank #3, it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors Likely to Influence PANW’s Q3 Results

Palo Alto Networks’ third-quarter fiscal 2025 performance is likely to have gained from the robust traction stemming from deal wins, which is expected to have pushed its revenues up. The strength in demand for its machine learning-powered models that enable organizations to ensure zero-trust network security for enterprises is likely to have contributed to the quarterly performance.

The accelerated migration to Palo Alto’s cloud platform is likely to have improved the adoption of its platforms. Moreover, the increased use of the cloud and remote networks in a hybrid working environment has resulted in escalating cyberattacks. This is leading to a rise in the demand for cybersecurity solutions. PANW’s fiscal second-quarter performance is likely to have benefited from this demand surge.

Federal Risk and Authorization Management Program (FedRAMP) recognitions are boosting the adoption of Palo Alto Networks’ products by government organizations. The company’s Prisma Access, Cortex XDR, Cortex Data Lake, Prisma Cloud and WildFire received FedRAMP recognitions. This FedRAMP recognition reflects the U.S. public sector’s trust in PANW’s IoT security solutions. This is anticipated to have encouraged the adoption of its products during the period in discussion.

However, PANW is experiencing headwinds related to cannibalization risks related to the shift from its hardware to software and cloud-based solutions. Furthermore, as PANW’s recently launched software has not yet achieved scale so it is pressuring the gross margin.

Price Performance & Stock Valuation

In the past year, shares of Palo Alto have risen 21.8%, underperforming the Zacks Internet – Software industry’s return of 31.8%.

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Now, let’s look at the value Palo Alto offers investors at the current levels. PANW is trading at a discount with a forward 12-month P/S of 12.52X compared with the industry’s 14.04X, reflecting a fair valuation.

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Investment Consideration

Palo Alto Networks’ innovative product offerings, strong customer base and expanding market opportunities in areas like Zero Trust and private 5G security solutions drive its growth potential. Palo Alto's strategic vision and continuous technological advancements make it a compelling long-term investment opportunity.

Nevertheless, Palo Alto Networks’ near-term prospects might be hurt by softening IT spending as enterprises postpone large tech investments due to macroeconomic uncertainties and geopolitical issues. Over the past year, Palo Alto Networks has reported a slowdown in revenues, billings and adjusted earnings growth, citing uncertain macroeconomic conditions as the main cause.

Furthermore, competition from established cybersecurity players, including CrowdStrike (CRWD Quick QuoteCRWD - Free Report) and Zscaler (ZS Quick QuoteZS - Free Report) . To survive in the highly competitive cybersecurity market, each player must continually invest in broadening its capabilities. Over the past few years, Palo Alto Network has invested heavily to enhance its sales and marketing capabilities, particularly by increasing the sales force. This has raised its operating expenses.

While Palo Alto Networks and Zscaler compete across secure web gateway, zero trust network access and security service edge solutions. ZS is also rapidly expanding its presence in AI for real-time anomaly detection, advanced threat correlation, AI-based policy recommendations, AI-based data loss prevention and AI Agents like ZDX Copilot, forcing its competitors like PANW to invest in this direction to maintain their competitiveness.

PANW also competes with CrowdStrike, which provides similar solutions like endpoint protection through Cortex XDR, combining endpoint, network, and cloud data to detect and respond to threats. Palo Alto Networks’ Prisma Cloud also competes with CrowdStrike’s Falcon Cloud Security. 

Conclusion: Hold Palo Alto Networks Stock Now

Palo Alto Networks is facing stiff competitive, macroeconomic and product adoption and revenue cannibalization challenges. However, the company’s aggressive go-to-market strategy is enabling it to gain customers rapidly. While near-term headwinds are a concern for investors, long-term potential makes PANW stock worth holding at present.