On Thursday, Citi maintained a Buy rating for Palo Alto Networks (NASDAQ: NASDAQ:PANW) shares and raised its price target to $432 from the previous $395. The adjustment follows the company's solid performance in key financial metrics, exceeding expectations.
The analyst noted the impressive growth in Remaining Performance Obligations (RPO), calculated Remaining Performance Obligations (cRPO), and Annual Recurring Revenue (ARR), which were all ahead of forecasts. These indicators are crucial for evaluating the company's future revenue potential.
Despite the positive outlook, there are concerns over the softening of organic Net New Annual Recurring Revenue (NNARR), which for the first time showed a year-over-year decline of 17%. This decline was partially offset by the impact of QRadar SaaS, which contributed significantly to the $155 million NNARR beat.
Moreover, the company experienced its fifth consecutive quarter of decelerating subscription-software revenues and a notable 13% year-over-year dip in billings.
However, the robust growth rates of 20% in RPO and 40% in ARR at this scale were highlighted as particularly impressive. The analyst believes that Palo Alto Networks' strategic shifts towards platformization and go-to-market pivots are showing promising results. The company's product-driven revenue and modest EBIT upside, although in line with Free Cash Flow (FCF), were seen as satisfying the necessary criteria for a respectable financial report.
Looking ahead, the analyst expressed a positive stance on the company's product prospects, including the normalization and refresh boon. The strong potential of Cortex, with over $1 billion in the Qualified Registration conversion pipeline, and the upcoming FY26/FY27 Next-Generation Security (NGS) renewal cycles, which could lead to an ARR uplift, were also cited as reasons for optimism.
In conclusion, the analyst from Citi anticipates durable positive estimate revisions for Palo Alto Networks, supported by a more constructive tone on the company's product outlook and robust Cortex prospects. This has led to the increased price target of $432, reflecting higher expected multiples.
In other recent news, Palo Alto Networks reported robust first-quarter performance, with a significant year-over-year growth in revenue and earnings. The company's total revenue saw a 14% increase to $2.14 billion, while the Next-Generation Security (NGS) Annual Recurring Revenue (ARR) witnessed a 40% rise, surpassing the $4.5 billion mark.
Earnings per share (EPS) also grew by 13%. However, the company's calculated billings experienced a year-over-year decline of 14%, which was approximately 20% below analyst projections.
Rosenblatt Securities upgraded Palo Alto Networks to a Buy rating from a previous Neutral position, setting a new price target of $425. Goldman Sachs (NYSE:GS) adjusted its price target to $421, while DA Davidson increased the price target to $435. BTIG raised the price target to $414, and Evercore ISI reiterated a price target of $455.
In terms of acquisitions, the successful integration of the QRadar acquisition played a key role in the rapid adoption of the company's Cortex/XSIAM platforms. This acquisition added $74 million to NGS ARR, contributing to the company's full-year revenue guidance. Palo Alto Networks also launched the Prisma Access Browser, acquiring over 115 new customers, and expanded its portfolio with over 70 new platformizations. These are the recent developments in the company.
InvestingPro Insights
Palo Alto Networks' strong financial performance, as highlighted in the article, is further supported by recent InvestingPro data. The company's revenue for the last twelve months as of Q4 2024 stood at $8.03 billion, with a notable revenue growth of 16.46%. This aligns with the analyst's positive outlook on the company's future revenue potential.
InvestingPro Tips reveal that Palo Alto Networks is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.11. This suggests that the stock may be undervalued considering its growth prospects, which could explain Citi's decision to raise the price target.
The company's strong market position is evident from its market capitalization of $128.57 billion. Additionally, an InvestingPro Tip notes that PANW is a prominent player in the Software (ETR:SOWGn) industry, reinforcing the analyst's confidence in the company's strategic shifts and product prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Palo Alto Networks, providing deeper insights into the company's financial health and market position.
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