Categories Analysis, Technology

Why you should consider buying the dip in Palo Alto Networks (PANW) stock

When the company publishes its third-quarter report on May 20, the market will be looking for earnings of $1.28 per share

Cybersecurity giant Palo Alto Networks, Inc. (NYSE: PANW) has been expanding its footprint in the technology space steadily amid growing demand for its products and services, especially during the pandemic when the widespread digitization brought cybersecurity into focus.

Investing in PANW

The Silicon Valley-based provider of enterprise-level firewalls more than doubled its market value in the past three years. The stock, which is trading sharply above its 52-week average, is expected to continue the uptrend and breach the $450-mark this year offering a good opportunity to prospective investors, especially after the recent pull-back. The outstanding financial performance – adjusted earnings either beat or matched estimates consistently – justifies the valuation.


Read management/analysts’ comments on Palo Alto’s Q2 2021 report


Currently, IT security is a top priority for most enterprises. When businesses shift to the digital space there is a corresponding increase in cyber threats, like the SolarStorm attack that hit businesses across the globe recently. Palo Alto’s ongoing transition to the cloud-based subscription model from on-site applications positions it to tap into the new opportunities. Moreover, the clientele includes many of the top companies that use multiple products of Palo Alto, which gives it an advantage over rivals like CrowdStrike Holdings, Inc. (NASDAQ: CRWD).

From Palo Alto’s second quarter 2020 earnings conference call:

The SolarStorm attacked highlighted that enterprises need a comprehensive up-to map of their full IT infrastructure environment, including understanding their own networks as well as external attack services and supply chains. In order for security teams to have an edge over the adversaries, they need to embrace next-generation technologies that leverage AI, machine learning, and automation. To help our customers, we set a rapid response program and when I say rapid it was rapid. Our acquisitions of Expanse and Crypsis almost fell precise. The team swung into action. We updated XDR for all the new threat vectors.”

Q3 Report on Tap

In the second quarter, the company’s revenue crossed the $1-billion mark for the first time as sequential growth accelerated during the pandemic. As a result, earnings jumped 30% to $1.55 per share. The numbers also surpassed the forecast. It is scheduled to publish the third-quarter report on May 20 after the market’s close. Experts forecast that earnings would grow 9% to $1.28 per share on revenues of $1.06 billion, which represents a 27% year-over-year increase. That is roughly in line with the management’s outlook.

Palo Alto recently closed the $156-million acquisition of cloud security company Bridgecrew, which will enable its cloud-native security platform Prisma to offer users security assessment and enforcement capabilities throughout the DevOps process. After a series of buyouts, the company intends to continue pursuing strategic acquisitions this year with a focus on strengthening Prisma and its AI-powered threat detection platform Cortex further. Nevertheless, costs related to the transactions will continue to put pressure on profitability – heavy cash burning has been a drag on GAAP metrics.

Stock Dips

Palo Alto’s stock hit a record in mid-February after gaining consistently for several months, but retreated later and slipped to the pre-peak levels last month. While their value rose around 34% in the trailing six months, the shares closed the last session sharply lower.

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