Is Palo Alto Networks a Smart Long-Term Buy?

Palo Alto Networks (NYSE:PANW) stock gained about 6% in after-hours trading on Thursday following its results for the third quarter of fiscal 2020. Notably, the quarter ended on April 30, 2020. The leading cybersecurity company reported better-than-expected results in the third quarter.

Palo Alto Networks reported sales of $869.4 million—an increase of 19.7% YoY (year-over-year). The adjusted EPS fell 10.7% YoY to $1.17 in the third quarter of fiscal 2020. Notably, the company reported sales of $726.6 million and an adjusted EPS of $1.31 in the third quarter of fiscal 2019. Wall Street analysts expected the company to post sales of $831.1 million and an adjusted EPS of $0.94 in the third quarter of fiscal 2020. In the third quarter of fiscal 2020, the company reported total billings of $1.0 billion—a rise of 24% YoY.

Palo Alto Networks’ earnings results

In the third-quarter earnings release, Palo Alto Networks CEO Nikesh Arora said, “The world will likely be in a state of transition over the next 12 to 18 months due to the COVID-19 pandemic. We believe this will prompt key trends to accelerate, including remote working models, shift to the cloud, and focus on AI/ML and automation to drive effective cybersecurity outcomes.” Arora added, “Palo Alto Networks is well positioned to leverage the acceleration of these trends, with our significant and ongoing investments to transform our company into a multi-product, integrated platform provider of cybersecurity solutions.”

In the fourth quarter of fiscal 2020, Palo Alto Networks expects total revenue between $915 million and $925 million. The company also expects its non-GAAP EPS to be $1.37–$1.40 for the fourth quarter. The total billings will likely be between $1.19 billion and $1.21 billion.

For fiscal 2020, Palo Alto Networks expects total revenue between $3.373 billion and $3.383 billion. The company also expects its non-GAAP EPS to be $4.78–$4.81 for fiscal 2020. The billings will likely be between $4.102 billion and $4.122 billion.

Wall Street analysts expect Palo Alto Networks to report an adjusted EPS of $1.37 on revenue of $922.71 million in the fourth quarter. Analysts also expect the company’s revenues to rise by 16.2% YoY in fiscal 2020 to $3.4 billion. The sales could rise by 17.3% YoY in fiscal 2021 to $4.0 billion. Meanwhile, the adjusted earnings will likely fall by 14.1% YoY in fiscal 2020 to $4.68 per share. However, the profits could rise by 23.3% YoY to $5.77 per share in fiscal 2021.

Analysts’ recommendations and target price

Among the 35 analysts following Palo Alto Networks stock, 24 recommend a “buy” and 11 recommend a “hold.” None of the analysts recommend a “sell.” Wall Street analysts’ mean target price on the stock is $249.39, which implies a 9% gain from the current level of $229.50. The consensus target price for the stock has risen from $212.77 in April—a growth of 17.2%.

Many analysts revised their target price for Palo Alto Networks stock after its third-quarter earnings report.

  • Piper Sandler increased its target price from $200 to $280.
  • Credit Suisse increased its target price from $190 to $195.
  • Jefferies increased its target price from $200 to $275.
  • Evercore ISI increased its target price from $200 to $250.
  • RBC increased its target price from $225 to $248.
  • Oppenheimer increased its target price from $225 to $265.
  • Mizuho increased its target price from $240 to $265.
  • Cowen and Company increased its target price from $205 to $230.
  • BMO increased its target price from $230 to $260.
  • Wedbush increased its target price from $240 to $270.
  • Wells Fargo increased its target price from $250 to $275.

Stock returns

Palo Alto Networks stock fell 2.1% on Thursday and ended the day at $229.50. At this closing price, the company’s market cap is $22.9 billion. Notably, the stock is trading 8.6% below its 52-week high of $251.11 and 82.9% above its 52-week low of $125.47.

Based on the closing price on Thursday, Palo Alto Networks stock was trading 9.3% above its 20-day moving average of $209.95. The stock is also trading 24.5% above its 50-day moving average of $184.30 and 11.7% above its 100-day moving average of $205.43. Palo Alto Networks’ 14-day relative strength index number is 71. The number indicates that the stock is overbought.

On Thursday, the Dow Jones Industrial Average fell by 102 points or 0.41%. Also, the S&P 500 and the Nasdaq Composite fell by 0.78% and 0.97%, respectively. Read US Stock Markets Are Overvalued, Chorus Gets Loud to learn more.