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Can Palo Alto Networks Triple Market Share by 2024?

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Sep. 18 2015, Published 11:56 a.m. ET

Demand for next-generation firewalls

Palo Alto Networks (PANW) is part of the telecom (telecommunication) industry. Its Communications Equipment subsector is expected to grow market share from 7% in 2015 to 24% in 2024, according to Sterling Auty, Wall Street analyst at J.P. Morgan. This will happen as telecom companies continue to upgrade and migrate their network securities to next-generation firewalls.

According to Auty, Palo Alto can generate 35% revenue CAGR (compound annual growth rate) between 2015 and 2019 and gain market share in the network security segment, thereby increasing subscription revenue. Increasing malware attacks have created opportunities for cybersecurity stocks such as PANW to integrate network security and security intelligence.

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Andrew Nowinski, Wall Street analyst at Piper Jaffray, stated, “Palo Alto has consistently outperformed in our quarterly reseller survey, though we noted a solid uptick in demand trends this quarter, relative to last quarter. The company continues to take market share from all the major firewall vendors in the market.”

Strong upside potential for stock

Auty has given an overweight rating to Palo Alto with a price target of $216. He stated, “Even with the stock up 130% over the past 12 months, we see ample upside as we believe Palo Alto Networks has the potential to do what no other security vendor has done—to grow revenue faster than 30% per year for more than five years in a row.”

Palo Alto Networks makes up 4.51% of the PureFunds ISE Cyber Security ETF (HACK). Peer companies such as Cisco Systems (CSCO) and Juniper Networks (JNPR) make up 3.78% and 4.47% of the ETF, respectively.

Palo Alto Networks (PANW) also makes up 0.12% of the iShares Russell 1000 Growth ETF (IWF).

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