Palo Alto's Competitive Pressure From Cisco To Blame For Downgrade

Baird downgraded Palo Alto Networks Inc PANW to Neutral following the cybersecurity firm’s lower-than-expected quarterly results and guidance, hurt by stronger competition from Cisco Systems, Inc. CSCO.

Palo Alto reported second quarter revenue/non-GAAP EPS of $423 million/$0.63 compared to consensus of $430 million/$0.62. Billings of $561 million was well below consensus of $586 million. The management attributed the weaker results to sales execution, productivity challenges, and to a certain degree sales cycle elongation.

The company guided third quarter revenue/non-GAAP EPS at $406-$416 million/$0.54-$0.56, well below consensus of $455 million/$0.70. Palo Alto also cut its F2017 revenue growth guidance to 25 percent from 30-31 percent and non-GAAP EPS view to $2.45-$2.50 from $2.75-$2.80. Billings is expected to trail revenue by 10-15 percent.

Related Article: Here's Why Citron's Andrew Left Sees Palo Alto Going To $170

“We believe Cisco has become a meaningfully stronger competitor per channel feedback. We feel more comfortable moving to the sidelines at this point as the company works through a sales coverage reorg,” analyst Jayson Noland wrote in a note.

Meanwhile, Palo Alto announced three action items for a major sales reorganization to improve productivity, including improve account mapping.

Shares of Palo Alto plunged 20.84 percent to $120.24. Noland slashed his price target to $130 from $175.