Palo Alto Networks, Inc. (PANW - Free Report) shares have gained nearly 10.5% in yesterday’s trading session, outperforming the market.
In the past three months, its shares have gained 5.4%, against the industry’s decline of 1.7%.
Will the recent momentum sustain the long haul or is it due for a pullback? Before we discuss how investors and analysts have reacted of late, let's take a quick look at the fundamentals and recent trends in order to get a better hold on the catalysts.
Stellar Q4 Results
Palo Alto Networks reported better-than-expected fourth-quarter fiscal 2017 results. The company reported adjusted earnings per share (excluding stock-based compensation, amortization and other one-time items) of 92 cents, surpassing the Zacks Consensus Estimate of 79 cents.
The company’s revenues of $509.1 million surged 27% year over year and outpaced the Zacks Consensus Estimate of $487 million. The quarterly revenues came above the guided range of $481-$491 million. The year-over-year increase was primarily due to new customer addition along with latest product launches. During the quarter, it added around 3,000 new customers. Total customer base for fiscal 2017 grew to more than 42,500.
The company provided an encouraging first-quarter and fiscal 2018 outlook. For first-quarter fiscal 2018, Palo Alto Networks expects revenues in a range of $482-$492 million, up 21-24% year over year. The Zacks Consensus Estimate was pegged at $485.3 million. The company expects non-GAAP earnings per share within 67-69 cents. The Zacks Consensus Estimate was pegged at 69 cents.
For fiscal 2018, the company anticipates revenue to be in the range of $2.125-$2.165 billion, an increase of 21-23% year over year. The Zacks Consensus Estimate is pegged at $2.12 billion. The company expects non-GAAP earnings per share within $3.24-$3.34 (mid-point $3.29 per share). The Zacks Consensus Estimate is pegged at $3.25 per share.
Other Growth Drivers
Palo Alto Networks and VMware, Inc. (VMW - Free Report) recently announced the expansion of strategic relationships to address cloud security needs of the latter’s customers. Per the agreement, Palo Alto Networks’ Next-Generation Security Platform will now be available to customers of VMware Cloud on Amazon’s (AMZN - Free Report) cloud computing wing, Amazon Web Services (AWS).
Through the new collaboration, Palo Alto Networks will combine its security platform with VMware’s software platform, which provides private cloud-based service to make the cloud-computing environment more secure, simple, flexible, and efficient. As VMware remains one of the leading companies in the virtualization and cloud computing space, we believe Palo Alto Networks will gain significantly from this collaboration.
Due to the rapid adoption of cloud computing technologies, security and prevention of data loss have become the top priorities for enterprises in recent times. Per Gartner’s new report, worldwide spending on IT security will reach $101 billion in 2018 from $75 billion recorded in 2015.
Palo Alto Networks’ innovative product portfolio is well positioned to benefit from this significant growth over the long run. We believe the interoperability of the company’s Next-Generation Security Platform will help customers accelerate transition to the cloud.
How have estimates been moving since then?
Analysts were quiet during the last one month as none of them issued any earnings estimate revisions.
Style Scores Look Great
Palo Alto Networks currently sports an A grade for Growth, lifting its overall VGM score to B.
On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 45.0x, significantly lower than the industry average of 95.4x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Consequently, lower the P/E of a stock, the better for investors.
The consensus estimate has been stable in the last 30 days. Notably, the stock has a Zacks Rank #3 (Hold). Additionally, the stock has long-term earnings per share growth rate of 24.6%.
In our opinion, the stock deserves a place in investor’s portfolio and we are expecting an impressive return from the stock in the next few months.
A better-ranked stock worth considering is Applied Optoelectronics, Inc. (AAOI - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS growth rate for Applied Optoelectronics is 17.5%.
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