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Palo Alto Networks Inc. (Nasdaq: PANW) delivered impressive Q4 2024 earnings, surpassing Wall Street’s expectations, which led to a flurry of analyst activity.

On Monday, the company reported earnings per share of $1.51, exceeding the consensus estimate by $0.10.

Revenue for the quarter came in at $2.2 billion, beating expectations by $40 million and representing a 12% year-over-year increase.

This strong performance prompted several Wall Street analysts to raise their price targets for the stock, with KeyBanc Capital Markets boosting its target from $380 to $400 and RBC Capital Markets elevating it from $390 to $410, maintaining their Overweight and Outperform ratings, respectively.

KeyBanc analysts highlighted that the Q4 results, while solid and in line with expectations, reinforced their positive outlook on Palo Alto Networks.

The company’s management provided a fiscal year 2025 revenue guidance that suggests continued strong growth, with expectations of a 12-13% increase in Q1 2025 and a 13-14% rise for the full fiscal year.

The transition of guidance to an RPO basis and the expectation of a 19-20% growth in RPO for both Q1 and the full year further bolstered investor confidence.

Despite the slightly conservative guidance, analysts remain optimistic, noting the company’s leadership in strategic markets and its potential to drive further consolidation in the cybersecurity sector.

RBC Capital Markets expressed similar sentiments, emphasizing the company’s momentum heading into fiscal year 2025.

The analysts were particularly encouraged by the acceleration in trends during the second half of fiscal 2024 and the progress in the company’s platformization strategy, which aims to unify various security services into a cohesive offering.

This strategy is crucial as customers increasingly seek integrated solutions rather than managing multiple vendors.

RBC believes that the initial guidance for fiscal year 2025 is slightly ahead of expectations, setting a positive tone for the year and potentially offering further upside.

JMP Securities also maintained its Market Outperform rating on Palo Alto Networks, with a price target of $380. The firm’s analysts praised the company for its “respectable” Q4 results, which included a notable 27.3% non-GAAP operating margin, a 320 basis point improvement from fiscal year 2023.

This margin expansion, coupled with strong revenue growth and solid earnings, reflects Palo Alto Networks’ successful execution of its platformization strategy.

CEO Nikesh Arora’s confident remarks about the strategy’s success have further reassured investors about the company’s long-term growth potential.

Strong demand for cybersecurity

Fundamentally, Palo Alto Networks is in a strong position. The company reported a total revenue of $8 billion for fiscal year 2024, marking a 16% year-over-year increase.

Its Next-Generation Security Annual Recurring Revenue (ARR) surged by 43% to $4.2 billion, underscoring the effectiveness of its platformization strategy and the growing demand for integrated cybersecurity solutions.

The company’s ability to balance top-line growth with profitability is evident in its improved non-GAAP operating margins and robust cash generation, which has positioned it well for future expansion.

Driving this growth is the increasing demand for cybersecurity solutions in an environment where cyber threats are becoming more sophisticated and frequent.

Palo Alto Networks’ focus on integrating AI into its product suite has generated significant interest, leading to more than $200 million in AI-related ARR.

The company’s cloud security business has also gained momentum, with ARR surpassing $700 million.

This growth is further supported by the rising frequency and severity of cyber incidents, which have heightened the need for robust and integrated cybersecurity solutions.

Premium valuation at play

In terms of valuation, the stock is currently priced at a forward earnings multiple of 55x, which is significantly higher than the tech sector median of 23.4x.

While the company’s consistent execution and strong profitability justify a premium valuation, investors should remain cautious of any potential slowdown in its platformization drive, which could lead to a sharp de-rating of its stock.

As Palo Alto Networks approaches its July 2024 highs, the market’s optimism is evident, but the stock’s current valuation suggests that any missteps could be costly.

With the company on a solid growth trajectory and Wall Street backing its potential, the next few quarters will be crucial in determining whether the stock can sustain its upward momentum.

Now, let’s see what the charts have to say about the stock’s price trajectory and whether the technicals align with the bullish fundamental outlook.

Strong bullish momentum

After a strong rally in 2023, Palo Alto Networks saw a sudden crash earlier this year in February after the company reported its Q2 numbers.

It has recovered from that crash over the past few months and has been particularly strong this month.

(Click on image to enlarge)

PANW chart by TradingView

Currently, the stock is experiencing strong bullish momentum in the short-term charts, which can again take it to its all-time high above $380.

Considering that investors who are bullish on the stock can start accumulating it at current levels near $360.

Traders who have a bearish outlook must avoid shorting the stock at present levels due to strong upward momentum.

The stock will be in control of bulls as long as it trades above its previous accumulation zone near $325.

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