Cybersecurity specialist Palo Alto Networks (PANW) has consistently outperformed the overall cybersecurity industry when it comes to growing revenues and profits.
Estimates suggest that cybercrime will grow at 15% per year over the next five years, costing the world some $10.5 trillion annually. Close to 70% of businesses surveyed predict spending on Cybersecurity will be a major component of their IT budgets in 2023. These trends bode well for Palo Alto Networks, which is set to report third quarter fiscal 2022 earnings results after the closing bell Tuesday. Investors want to know if now’s a good time to buy the stock.
Offering a diversified suite of IT products, the company continues to benefit from its leadership position in seven key cybersecurity categories, and thus is expected deliver growth on both the top and bottom lines when it reports results for the quarter that ended April. With its shares up some 36% year to date, besting the 9.34% rise in the S&P 500 index, while climbing 30% over the past year, compared to 7% rise in the S&P 500 index, it appears the market has already rewarded the company for its performance.
Driven by an increasingly connected digital ecosystem and heightened cyber threats, there’s still massive opportunity in the cybersecurity landscape for 2023 and beyond. Through its wide array of integrated products and focus on AI-driven innovation, Palo Alto is strategically positioned to capitalize on this demand. Investors who have waited for a better entry point might have missed the recent stock surge, but they can still do well here.
Cybersecurity will remain one of the hottest sectors in tech in the next five years, during which the company is projected grow earnings at an average annual rate of 27.5%. The question on Tuesday, however, will be whether the company can provide strong guidance to keep investors (and analysts) excited about its stock, which continues to benefit from its leadership position in key cybersecurity categories.
For the three months that ended April, Wall Street expects the California-based company to earn 93 cents per share on revenue of $1.71 billion. This compares to the year-ago quarter when earnings came to 60 cents per share on revenue of $1.39 billion. For the full year, ending August, earnings are projected to increase 59% year over year to $4.02 per share, while full-year revenue of $6.89 billion would rise 25.2% year over year.
With revenue is still growing north of 25% annually underscores the strength in Palo Alto’s cloud business. Analysts believe that the cloud security segment is still in the early stages and will continue to rise as employers embrace the hybrid work environment of remote and in-office. This trend will rely on the sort of cloud cyber-prevention and firewall tools Palo Alto offers to protect their endpoints. To date, the company has executed on its advantages.
Palo Alto has delivered ten straight top- and bottom-line beats, including in the second quarter when it easily surpassed Street estimates. In Q2 Palo Alto earned an adjusted $1.05 per share on $1.66 billion, topping consensus of 78 cents per share on $1.55 billion in revenue. The Q2 revenue growth rate of 25.7% was much faster than the 10% growth rate of the overall cybersecurity industry.
Just as impressive, Q2 billings rose 26% to $2.03 billion, with remaining performance obligations growing 36% year-over-year to $8.8 billion, topping estimates of $8.38 billion. Investors on Tuesday will want to see whether these strong growth trends can continue. With PANW stock trading at roughly six time forward revenue, there’s still value to be realized if Palo Alto can affirm its strong market position.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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