Palo Alto Drops Pre-Market On Dim 3Q Profit Outlook; Street Says Buy

Shares of Palo Alto Networks were down about 2.3% in Tuesday’s pre-market session after the cybersecurity solution provider issued 3Q earnings guidance, the mid-point of which missed the Street’s estimates. The weak outlook overshadowed the company better-than-expected results for the second quarter.

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Palo Alto (PANW) anticipates 3Q adjusted earnings to come in between $1.27-$1.29 per share, which at the midpoint of $1.28 per share is a penny lower than analysts’ expectations of $1.29. Meanwhile, the company expects revenues to generate $1.05 billion – $1.06 billion, with the midpoint of $1.055 billion coming in slightly above Street estimates of $1.05 billion. (See Palo Alto Networks stock analysis on TipRanks)

During 2Q, Palo Alto’s adjusted earnings soared 30.3% to $1.55 per share year-on-year and surpassed analysts’ expectations of $1.43. The company’s revenues of $1 billion topped the consensus estimate of $986 million and marked a year-over-year improvement of 25%.

Palo Alto Networks’ CEO Nikesh Arora stated that the strong top-line performance was mainly “driven by strong execution across the board.”

For fiscal 2021, the company forecasted revenues of $4.15-$4.20 billion, compared to the Street estimates of $4.13 billion. Adjusted earnings are projected to land $5.80-$5.90 per share versus the Street consensus of $5.81.

Following the earnings release, Oppenheimer analyst Ittai Kidron raised the stock’s price target to $420 (9.3% upside potential) from $305 and reiterated a Buy rating.

In a note to investors, Kidron wrote, “Palo Alto continues to impress and successfully execute its transition to software, subscription, and cloud. While the fast pace of acquisitions raises some execution concerns, management has proven to be skilled and effective in quickly driving value, adding future growth drivers. Given the potential to unlock more value (Cloud & AI equity structure) and strong momentum, we see more upside ahead.”

Analysts have a Strong Buy consensus rating on PANW based on 20 Buys, 1 Hold, and 1 Sell. The average analyst price target of $422.91 implies upside potential of about 10% from current levels. Shares have soared more than 58% over the past year.