Palo Alto Networks Reports Upbeat Earnings, Analysts Impressed By Platform Acceleration

Analysts published commentary on Palo Alto Networks Inc PANW after the company reported upbeat fiscal first-quarter results.

• Goldman Sachs analyst Gabriela Borges maintained a Buy rating, while reducing the price target from $425 to $421.
• Needham analyst Matt Dezort reiterated a Buy rating, while raising the price target from $385 to $450.
• JMP Securities analyst Trevor Walsh reaffirmed a Market Outperform rating, while lifting the price target from $380 to $415.
• Piper Sandler analyst Rob Owens maintained a Neutral rating, while raising the price target from $330 to $385.
• KeyBanc Capital Markets analyst Eric Heath reiterated an Overweight rating and price target of $435.
• Cantor Fitzgerald analyst Jonathan Ruykhaver reaffirmed an Overweight rating and price target of $445.
• RBC Capital Markets analyst Matthew Hedberg maintained an Outperform rating and a price target of $450.RBC Capital Markets
• Oppenheimer analyst Ittai Kidron reiterated an Outperform Buy rating and price target of $450.
• WestPark Capital analyst Paul Rodriguez reaffirmed a Hold rating on the stock.

Check out other analyst stock ratings.

Goldman Sachs: Palo Alto reported its quarterly revenues 1% above the Street and earnings 6% higher. Management raised their fiscal 2025 guidance for NGS ARR (next-generation security annual recurring revenue) by 2%.

Gross margins came in 85 basis points (bps) short of estimates. Calculated billings declined by 14% year-on-year and came around 20% below the Street. "We believe there continues to be good runway for Palo Alto to transition customers to higher performance (and price) attached subscriptions," Borges said in a note.

Needham: ARR and revenues are up 40% year-on-year at $4.52 billion and up 14% at $2.14 billion, beating consensus by 3.5% and 1%, respectively. RPOs (remaining performance obligations) grew by 20% year-on-year to $12.6 billion and the company guided for an acceleration to 20%-21% in the second quarter, he added.

"Platformization progress continues to impress," with the company adding more than 70 customers in the quarter, which brings the total to 1,100, Dezort said. Palo Alto reiterated its target of reaching 2,500-3,000 platform customers and $15 billion in ARR by fiscal 2030.

JMP Securities: Non-GAAP earnings of $1.56 per share came in higher than consensus of $1.48 per share. The company guided non-GAAP earnings of $1.54-$1.56 per share for the fiscal second quarter, versus consensus of $1.55 per share.

Momentum in the company's SASE and XSIAM offerings is driving platformization, the analyst stated. These offerings "continue to be key growth drivers for the network security and security operations pillars of the business, respectively," Walsh said.

Piper Sandler: Palo Alto enjoyed an acceleration in RPO growth “given platformization momentum, with beats across other top- and bottom-line metrics," Owens said. Despite this, the company's full-year RPO expectations were in-line, which effectively lowers bookings expectations, "driving the disappointment on the quarter.”

"Platformization continued to gain traction, with over 70 new platformization deals in F’1Q, with a third coming from QRadar," the analyst wrote. The company's next-gen portfolio remains strong, he further stated.

KeyBanc Capital Markets: Palo Alto Networks performed better than other "many security peers" in the quarter, Heath said. While revenue, RPO, NGS ARR, and margins came in ahead of expectations, billings was "meaningfully" below, he added.

Investors may be concerned about the sequential decline in deferred revenues acting as a headwind to free cash flows. A move to annualized invoicing seems to be "already quickening sales cycles" and improving visibility into free cash flows in the medium term, the analyst stated. "We remain positive on security being a top area of spend in IT, customers continuing to consolidate security vendors, and we view Palo as a leader in several strategic markets, while still early in consolidating those adjacencies," he added.

Cantor Fitzgerald: Palo Alto started the new fiscal year "on the right foot," outperforming consensus on revenue, RPO, NGS ARR, and earnings, Ruykhaver said. The company raised its full-year guidance to reflect the "strong 1Q momentum and continued strength in the platformization approach," he added.

QRadar added 550 customers to the Cortex customer base and present "ample upsell opportunity to the XSIAM offering," the analyst wrote. Management values this pipeline at more than $1 billion, he further stated.

RBC Capital Markets: Billings declined by 13.5% to $1,752 million, coming in well below consensus of $2,192 million, Hedberg said. "We note again that PANW stopped guiding to billings last quarter given the noise the platformization strategy has introduced to the metric," he added.

Progress in platformization continued in the quarter and "the market is seeing a growing realization of the impact platformization can have," the analyst wrote. Although management raised the full-year guidance for NGS ARR, the extent was less than the first-quarter beat, he further stated.

Oppenheimer: Palo Alto generated strong results for the fiscal first quarter, beating estimates, driven by "sustained momentum on its platform push, broad product adoption, slight acceleration in RPO, and solid cost discipline," Kidron said. The company reported "standout" results for SASE, with 20% year-on-year growth in customers and over 40% growth in deals worth over $1M, and for Cortex, with 180% growth in over $1M XSIAM ARR customers, he added.

"Looking ahead, we see an attractive outlook, and believe easing firewall headwinds, an opportunity to leverage its SASE footprint to drive displacements in the upcoming firewall refresh cycle, and a >$1.5B bookings opportunity with QRadar customers can deliver upside to the current outlook," the analyst further wrote.

WestPark Capital: Palo Alto Networks' revenue growth came in slightly above 14%, higher than the estimate of 12%-13%, Rodriguez said. The company's strong NGS ARR growth of 40% was helped by the inclusion of QRadar migrations, he added.

Management guided to revenues in the range of $2.22 billion to $2.25 billion for the fiscal second quarter and $9.12 billion to $9.17 billion for the full year, the analyst stated. Booking from QRadar to XSIAM transactions have already exceeded $80 million since the deal announcement in May, he further mentioned.

Price Action: Shares of Palo Alto Networkshad declined by 1.04% to $388.80 at the time of publication on Thursday.

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