It has been about a month since the last earnings report for Palo Alto Networks (PANW - Free Report) . Shares have lost about 1.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Palo Alto due for a breakout? 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 Q4 Results
Palo Alto reported fourth-quarter fiscal 2019 non-GAAP earnings of $1.47 per share, which not only improved 14.8% year over year but also surpassed the Zacks Consensus Estimate of $1.45.
Moreover, the company’s revenues of $805.8 million increased 22% year over year, outpacing the consensus estimate of $803 million.
The impressive results were mainly driven by several deal wins and the increasing adoption of the company’s next-generation security platforms. Growing traction in newer Prisma and Cortex offerings was another tailwind.
In a parallel announcement, Palo Alto clarified its intent to acquire the IoT security start-up Zingbox for $75 million.
Product revenues increased approximately 12.3% to $305.7 million. The company also witnessed a 29.4% jump in subscription and support revenues to $500.1 million.
Further, billings improved 22% year over year to $1.1 billion. Deferred revenues rose 27% to $2.9 billion as well.
Region wise, revenues from the Americas climbed 24.7% while revenues from Europe, the Middle East and Africa, and Asia Pacific were up 17.6% and 16.8%, respectively.
During the quarter, the company added nearly 3,000 customers. It boasts 65,000 customers currently.
Additionally, Palo Alto’s non-GAAP gross margin expanded 130 basis points (bps) on a year-over-year basis to 77.5%.
While non-GAAP operating expense of $450.4 million as a percentage of revenues expanded 400 bps to 55.9%, non-GAAP operating margin contracted 270 bps to 21.6%.
Palo Alto exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of approximately $2.8 billion compared with $3.7 billion at the end of the preceding quarter.
The company’s balance sheet does not have any long-term debt.
It generated cash flow from operations of $231.5 million compared with $275.4 million in the previous reported quarter. Free cash flow came in at $178.4 million.
Fiscal 2019 Highlights
For fiscal 2019, the company reported total revenues of $2.9 billion, which grew 28% year over year.
Also, revenues from its products rose 24.6% year over year to $1.01 billion. Plus, revenues from Subscription and support improved 29.4% to $1.8 billion.
For the first quarter of fiscal 2020, Palo Alto anticipates revenue growth of 16-17% year over year. Billings growth is anticipated between 15% and 17% year over year.
Non-GAAP earnings per share are estimated in the range of $1.02-$1.04, which includes expenses related to the acquisition of Zingbox.
For fiscal 2020, the company expects billings to increase in the range of 17-19% year over year. Revenue growth for the fiscal is envisioned to grow within 19-20% year over year. The company expects billings growth of its next-generation security business (Prisma and Cortex) at 77-79%.
Non-GAAP earnings per share are estimated in the band of $5-$5.1 for fiscal 2020.
Moreover, management projects a 20% CAGR for total billings and total revenue over the next three years. The company hopes to achieve $6 billion in total billings and $5 billion in total revenues by fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -209.68% due to these changes.
Currently, Palo Alto has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Palo Alto has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.