Palo Alto Analysts Optimistic On Revenue Growth, Expanding Market Share

Shares of Palo Alto Networks Inc PANW were trading lower on Friday, even after the company reported upbeat fiscal second-quarter results.

The company reported its quarterly results amid an exciting earnings season. Here are some key analyst takeaways.

Goldman Sachs On Palo Alto Networks

Analyst Gabriela Borges reiterated a Buy rating, while lifting the price target from $210.50 to $215.00.

Palo Alto Networks reported mixed results for the fiscal second quarter, with RPO (remaining performance obligation) beating Street expectations by 1% and billings coming in 4% short, Borges said in a note. The company expects its free cash flow (FCF) margins to be above 37% through fiscal 2027, addressing concerns around FCF margins deteriorating over the medium term, she added.

"Management expects AI infrastructure investment to translate to higher network security demand, as on-premise, cloud, and/or AI Firewalls are necessary to secure and maintain the sensitive data needed for customer-facing AI deployments," the analyst wrote.

Needham On Palo Alto Networks

Analyst Matt Dezort maintained a Buy rating, while raising the price target from $225 to $230.

Palo Alto Networks' revenues grew by 14% year-on-year to $2.26 billion, beating consensus of $2.24 billion, Dezort said. The beat was "driven by upside to Product growth (+8%) and in-line Subscription (+16%)," he added.

RPO grew by 21% to $13 billion, while the average contract duration was around 3 years, the analyst stated. "PANW extended FCF margin targets for 37%-38%+ through FY27 as visibility to deferred payments, operating efficiencies, and AI are expanding as larger, more efficient platform deals roll in," he further wrote.

Rosenblatt Securities On Palo Alto Networks

Analyst Catharine Trebnick reaffirmed a Buy rating and price target of $235.

The company's revenue beat was driven by large deals, with 74 accounts of more than $5 million and 32 accounts of over $10 million, representing 25% and 50% year-on-year growth, Trebnick said. "The company is seeing the duration of contracts trending towards the high end of the historical range," she added.

Next-generation security annualized recurring revenue (NGS ARR) grew by around 37% year-on-year and RPOs by 20%, reflecting the company's platform strength and continued demand, the analyst stated. "The company’s strong execution and platform strategy position it for continued success in the expanding cybersecurity market," she further wrote.

Check out other analyst stock ratings.

Truist Securities On Palo Alto Networks

Analyst Joel Fishbein reiterated a Buy rating and price target of $213.

Palo Alto Networks reported solid quarterly results, "driven by its continued shift to platformization," Fishbein said. Both the breadth and depth of its platformization are gaining traction, he added.

The company added more than 75 net new platformizations in the fiscal second quarter, bringing the total to around 1,150, the analyst stated. "Management also said they were on track to reach their goal of 2,500-3,500 total platformizations and $15B of NGS ARR by FY30," he further wrote.

Wedbush On Palo Alto Networks

Analyst Daniel Ives maintained an Outperform and price target of $225.

Palo Alto Networks delivered beats in revenue, earnings, RPO, and NGS ARR, Ives said. He added, however, that the company's gross margins came in at 76.7%, below Street estimates of 77.4% due to "pressure from new SaaS offerings that are growing but haven't properly scaled yet," he added.

The platform approach in cybersecurity seems to be the "right long-term move" for the company, which will "ultimately emerge from this transition in a stronger market position," the analyst wrote. Platformization conversions continued to accelerate in the quarter, leading to NGS ARR growing by 37% year-on-year to $4.78 billion, beating consensus of $4.73 billion, he further stated.

WestPark Capital On Palo Alto Networks

Analyst Casey Ryan reaffirmed a Hold rating on the stock.

Palo Alto Networks reported earnings of 81 cents per share, beating consensus of 78 cents per share, Ryan said. He added, however, that gross margins contracted to 77%, from 79% in the fiscal first quarter due to the continued platformization strategy.

"We believe that Palo Alto is doing well to capture larger shares in the cyber market as they consolidate and streamline functions," the analyst wrote. The next opportunities to increase the company's addressable market could be Cloud 2.0 security and identity protection and monitoring with an increasing number of AI agents being used, he further stated.

PANW Price Action: Shares of Palo Alto Networks were down 2.9% to $195.91 at the time of publication Friday.

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