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Palo Alto (PANW) Up 4.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Palo Alto Networks (PANW - Free Report) . Shares have added about 4.6% 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 Networks Reports Q1 Results

Palo Alto Networks delivered first-quarter fiscal 2019 non-GAAP earnings of $1.17 per share, which not only improved 56% on a year-over-year basis but also surpassed the Zacks Consensus Estimate of $1.05.

Palo Alto’s revenues of $656 million surged 31% year over year, outpacing the Zacks Consensus Estimate of $632 million.

The impressive results were mainly driven by a healthy demand environment, product strength and an increasing adoption of the company’s next-generation security platforms.

Management is optimistic about the consistent spending on security, which is backed by a large-scale upgrade in IT infrastructure and transition to cloud.

Quarterly Details

Product revenues increased approximately 30% to $240.5 million. The company witnessed a 31% jump in subscription and support revenues to $415.5 million. SaaS-based subscription revenues rose 37% from the year-ago period to $231.3 million. Support revenues increased 24% year over year to $415.5 million.

Billings improved 27% year over year to $758.5 million.

Geographically, revenues from the Americas climbed 29% on a year-over-year basis. The figures from Europe, the Middle East and Africa (EMEA) and Asia Pacific were up 35%, each.

Management mentioned that the company’s first speedboat in cloud security has been launched and is off to a good start. Its GlobalProtect cloud offering also recorded success with some of the large players during the reported quarter.

During the quarter under review, the company witnessed solid growth in customer acquisition and also expanded its wallet share with the existing clientele. It is also doing well in the federal space. With WildFire achieving Federal Risk and Authorization Management Program or FedRAMP and Ready status, the company will now be able to provide the advanced threat prevention and analysis capabilities to U.S. federal agencies.

Management announced that the company is also launching a product to cater to the needs of service providers, who are facing a major transformation from 4G to 5G. The company anticipates the same to be available in early 2019.

Moreover, with the completion of RedLock buyout in the quarter under consideration, the company expects to extend its leadership in cloud security.

Operating Results

Palo Alto’s non-GAAP gross margin expanded 10 basis points (bps) on a year-over-year basis to 76.7%.

Non-GAAP operating expenses of $366.5 million increased 27.3% year over year. As percentage of revenues, it improved 140 bps year over year to 55.9%.  Non-GAAP operating margin expanded 150 bps to 20.8%.

Balance Sheet

Palo Alto exited the fiscal first quarter with cash, cash equivalents and short-term investments of approximately $3.2 billion compared with $3.4 billion at the end of the preceding quarter.

Receivables were $382.3 million compared with $467.3 million recorded in the prior quarter. Furthermore, the company’s balance sheet is free of any long-term debt.

It generated cash flow from operations of $252.3 million in the reported quarter. Free cash flow came in at $218 million.

Guidance

For the second quarter of fiscal 2019, Palo Alto anticipates revenues of $675-$685 million, up 24-26% year over year.

Non-GAAP effective tax rate for the current quarter is projected to be approximately 22%.

Non-GAAP earnings per share are estimated in the range of $1.20-$1.22. This includes an expense of $10-$15 million associated with the latest consolidation. Moreover, the impact of U.S. tariffs on Chinese goods is also taken into consideration.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted -28.12% due to these changes.

VGM Scores

Currently, Palo Alto has a great 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Palo Alto has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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