Why Stifel Says Palo Alto Long-Term Positive View Remains 'Very Much Intact'

Stifel says its long-term positive view on Palo Alto Networks Inc PANW remains intact despite the company’s disappointing first quarter results. The brokerage reiterated its Buy rating and $210 price target, as it believes investors should view the results as a “hiccup, not a derailment.”

Quarterly Print

The cybersecurity company reported first quarter revenue at $398.1 million, missing the estimate and the consensus, with EPS of $0.55, which was marginally ahead of expectations.

Billings grew 33.2 percent to $516.9 million, while product sales grew 11 percent to $163.8 million. But, both metrics came in below the estimates. Palo Alto’s product revenue and billings numbers were hit by an elongated sales cycle, resulting in some of the company's larger deals slipping into second quarter.

Palo Alto guided to second quarter revenue and EPS of $426 million–$432 million and $0.61–$0.63, respectively, with the revenue falling short of the consensus forecast.

Analyst's Take

“We view the miss mostly under the macro lens - namely that while we see a generally healthy enterprise security spending environment, we're also seeing greater scrutiny and generally more "stops along the way" before a deal closes,” analyst Gur Talpaz wrote in a note.

Further, the analyst attributed the disappointing results to higher levels of discounting from Palo Alto's rivals and greater visibility from vendors like Cisco Systems, Inc. CSCO, which have become more aggressive with regard to their security business.

“However, we are encouraged by the improving traction of the company's Traps (now protecting >1 million endpoints and servers) and VM-Series (>2,000 customers; half of this quarter's new customer additions were first-time PANW customers) solutions,” Talpaz highlighted.

At last check, shares of Palo Alto plunged 13.93 percent to $138.62.