Palo Alto Networks (PANW) can add value to investors’ portfolios. Here’s why

Palo Alto Networks, Inc. (NYSE: PANW) is riding the high demand for cybersecurity solutions, at a time when the digital world is exploring new solutions to deal with new threats. After expanding its legacy business across markets, the company has shifted focus to AI-supported security services. Aggressive investments in cloud-native offerings and portfolio expansion helped the business effectively tap into new opportunities created by the widespread digital transformation.

After staying on the growth path consistently for more than two years, Palo Alto’s stock peaked in the final weeks of last year. But it had a weak start to 2022 and declined about 10% since the beginning of the year. However, the market is quite bullish about the stock’s future prospects, mainly due to the growing demand for data security solutions and the company’s impressive track record in expanding market share.

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Read management/analysts’ comments on Palo Alto’s Q2 2022 earnings

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There is enough reason to believe PANW would bounce back from the temporary slump and reach new heights in the coming months, to the extent that the price might breach the $600-mark. The recent moderation in value can be seen as a buying opportunity because the stock has the potential to create good shareholder value in the long term.

The Market

Strata, the company’s core product, continues to be the main growth driver, though next-gen security suites Prisma and Cortex are catching up fast, taking advantage of the rapid cloud adoption. Of late, there has been a spike in cyberattacks and an increase in threats from ransomware, which make Palo Alto’s solutions more relevant than ever before. The company’s continued engagement in these areas and expansion of the cloud-native security platform, supported by the hybrid model, have resulted in strong customer wins.

While the innovative approach helped the company gain an edge over others in the market, growing competition from the likes of CrowdStrike Holdings, Inc. (NASDAQ: CRWD) would remain a big challenge in the near future.

“We not only continue to see strong near-term demand, but it’s also strong medium-term trends in cyber security, fueled by underlying strength in IT spendings and secular trends like hybrid work and cloud-native adoption. We have aligned investments both to building sales capacity for fiscal year ’23 as well as medium-term investments of product capability. These investments have been made while also absorbing unexpected supply-chain-related cost this year,” said Nikesh Arora, chief executive officer of Palo Alto Networks.

Q2 Results

For the second quarter of 2022, the company reported stronger-than-expected earnings and revenues, a trend that continued over the past several years. Adjusted profit came in at $1.74, which is sharply higher than last year’s earnings of $1.55 per share and above the market’s projection. The upturn was driven by a 30% increase in revenues to $1.3 billion, which also topped expectations.

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CrowdStrike: Why this cybersecurity stock should be on your watchlist

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Palo Alto’s stock closed the last trading session higher but pared a part of the gains in after-hours trading. PANW has gained around 30% in the past six months.