On Monday, Barclays (LON:BARC) analyst Saket Kalia maintained an Overweight rating for Palo Alto Networks (NASDAQ:PANW) stock, with a steady price target of $213.00. According to InvestingPro data, PANW is currently trading near its 52-week high of $207.24, with a market capitalization of $127.26 billion. The stock has shown strong momentum with a 17% gain over the past six months. Kalia provided insights into the company’s expected performance for its fiscal second quarter, with results due on February 13. The analysis included a projection of approximately 9% year-over-year growth in second-quarter Remaining Performance Obligations (RPO) bookings, hinting at potential upside due to a robust firewall quarter as indicated by the performance of peers Fortinet (NASDAQ:FTNT) and Check Point. InvestingPro analysis shows the company maintains a "GREAT" financial health score of 3.26, supported by strong revenue growth of 15% over the last twelve months.
Kalia also forecasted that the Next-Generation Security (NGS) Annual Recurring Revenue (ARR) guidance would likely reflect a base growth of around 35% year-over-year, or $205 million in net new ARR. However, there’s a possibility of flat to down year-over-year net new ARR, albeit with an increase quarter-over-quarter, excluding the Quick Revenue of Cash (QRoC) from the first quarter. This scenario might unfold if the company continues to execute well on platformization, which bolsters the NGS line.
The expectation is that Palo Alto Networks will reiterate its Fiscal Year 2025 RPO guide, given the balancing act between revenue and RPO bookings, making it challenging to adjust the forecast. Nonetheless, there could be more potential for a positive adjustment in the FY25 NGS ARR guide, should the second-quarter results surpass expectations.
Regarding Free Cash Flow (FCF), the FY25 FCF margin guide is anticipated to remain unchanged at 37-38%. Nevertheless, increases in revenue throughout the year could lead to a rise in FCF dollars. With a current P/E ratio of 45.74 and analyst consensus remaining bullish (1.91 rating), investors seeking deeper insights can access comprehensive valuation metrics and 14 additional ProTips through InvestingPro’s detailed research reports. Kalia emphasized that billings are no longer a reliable indicator of demand, as Palo Alto Networks will engage in fewer PAN FS deals. Therefore, the firm’s estimates for billings are below the consensus for the second quarter and the full year. Instead, RPO bookings and NGS ARR are considered more accurate reflections of the company’s business health, as they are not influenced by billing or payment terms. Upside on these metrics is possible in the second quarter and could continue throughout the rest of Fiscal Year 2025.
In other recent news, RBC Capital Markets has identified a group of software companies, including Salesforce (NYSE:CRM), CrowdStrike Holdings (NASDAQ:CRWD), Datadog (NASDAQ:DDOG), GitLab, HubSpot (NYSE:HUBS), IBM (NYSE:IBM), Intuit (NASDAQ:INTU), MongoDB (NASDAQ:MDB), Microsoft (NASDAQ:MSFT), Cloudflare (NYSE:NET), NICE Ltd, ServiceNow (NYSE:NOW), Palo Alto Networks, Pegasystems (NASDAQ:PEGA), Snowflake (NYSE:SNOW), Varonis Systems (NASDAQ:VRNS), and Zoom Video Communications (NASDAQ:ZM), that are poised to benefit from advancements in generative artificial intelligence (GenAI). In a related development, a study conducted by IBM’s Institute for Business Value (IBV) and Palo Alto Networks revealed that organizations are grappling with the complexity of managing an average of 83 different security solutions from 29 vendors. This study also found that companies adopting a platformized approach to security experience nearly four times better return on investment from their cybersecurity spending.
JMP Securities maintained a positive stance on Palo Alto Networks, reiterating a Market Outperform rating, recognizing the company’s industrial-focused approach and its ability to integrate IoT as part of a broader security platform. Palo Alto Networks has also recently launched a Quantum (NASDAQ:QMCO) Random Number Generator (QRNG) Open API framework in a significant move to bolster cybersecurity in the quantum computing era. This initiative is a collaborative effort with six QRNG innovators aimed at standardizing the integration of quantum randomness into security systems. All these are recent developments, providing a snapshot of the companies’ recent activities in the tech space.
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