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Palo Alto Networks (PANW)  is a Zacks Rank #1 (Strong Buy) that is a cybersecurity company that offers network security solutions to enterprises, service providers and government entities worldwide.

The stock has been a top performer this year, up 65% so far in 2023. After selling off from recent highs, the bulls got a another bullish catalyst with a big earnings surprise to the upside.

While there has been plenty of volatility recently, the trend is still higher. The question for investors is if this stock can get back to those recent highs and finish the year out strong.

More about Palo Alto

The company incorporated in 2005 and is headquartered in Santa Clara, California. It employs over 12,000 and has a market cap of $70 billion.

Palo Alto offers firewall appliances and software, subscription services for cyber threats, cloud security, professional services and more. Palo Alto sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries.

The stock has a Zacks Style Score of “A” in Momentum, “B” in Growth, but “F” in Value. The Forward PE is 43, which is a concern for value investors.

Q4 Earnings

Palo reported earnings on August 18^th and once again beat expectations. The 12% beat was not as good as the last three quarters, but was still enough to take the stock 15% higher. The company is used to beating earnings expectations, with not one single miss since going public over a decade ago.  

Looking at the quarter, Palo reported Q4 at $1.44 v the $1.28 expected. Billings came in at $3.2B, up 18% y/y, while remaining performance obligation was up 30% y/y.

The company guided Q1 at a range of $1.15-1.17 v the $1.11 expected.  They also guided FY24 at $5.27-5.40 v the $4.95 expected.

Management cited strong execution and the changing environment that is driving customers towards platformization. Additionally, their AI based security automation platform XSIAM is being met with positive reception.

Estimates Rising

The strong quarter has analysts raising estimates across the board.  

Over the last 7 days since earnings were released, the current quarters estimates have gone from $1.10 to $1.15, or 5% higher. Expectations for next quarter have been lifted as well, with estimates also going up by 5%.

Looking further out, estimates continue to trend higher. For the current year, we have seen estimates go from $4.95 to $5.30 over the last month, or 7%. For next year, estimates spiked to $6.36 from $5.85, or 9%.

Since Palo Alto reported earnings, Wall Street has been lifting price targets for the stock.

JPMorgan has an Overweight on the stock and raised their price target from $251 to $268.

Oppenheimer reiterated its Outperform and maintained their $290 target.

Morgan Stanley is one of the most bullish firms, reiterating their Overweight and $304 target, up from the previous target of $302.

Analyst cited positive long-term guidance as a catalyst for the bullishness. This in the face of increasing macro headwinds that recently made investors sell the name. 

The Technical Take

While the stock saw some aggressive selling into the earnings print, it came roaring right back to come just 5% of all-time highs.

Looking at moving averages, PANW looked like it might test the 200-day MA last week at $192. However, the earnings gap higher took that opportunity away and the stock shot right back above the 50-day MA at $238.

We have seen some selling since the move higher, with the 21-day MA at $226 offering some support.

If recent market weakness persists, investors can eye that 200-day again under $200. However, the fundamentals might be too strong and if the 50-day is taken back by the bulls, we should see those all-time highs.

The 8/18 low did test the halfway back mark, drawn from January lows to July highs. If that Fib setup holds up, investors can target the $288 level into year end.

In Summary

Palo Alto is the best of breed in cybersecurity and continues to post big earnings numbers. While the stock might see some struggles with recent market weakness, the pullbacks should be looked as long-term opportunities.

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