Company Reports

We are raising our fair value estimate for wide-moat Palo Alto Networks to $300 from $250. Spearheading this fair value increase is a revised outlook on the firm’s long-term growth prospects, as we expect vendor consolidation and artificial intelligence to drive greater demand for Palo Alto’s solutions. Despite our updated long-term expectations, we’d be remiss not to point out that the near-term picture for Palo Alto is far from rosy. The firm reduced its billings guidance for fiscal 2024 for the second quarter in a row, spooking investors and leading to Palo Alto shares dropping more than 20% afterhours. While we are modeling a reduced top-line growth profile over the next couple of years, as the drop in billings flows through to sales, our updated long-term growth projections more than offset the impact of reduced near-term sales on our fair value estimate.

We view Palo Alto Networks as a leader in multiple cybersecurity end markets, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations, shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

We are raising our fair value estimate to $250 from $245 for wide-moat Palo Alto Networks after the firm kicked off fiscal 2024 with strong financial results including better-than-expected profitability. While competitors like Fortinet have seen forward-looking metrics affected by a downturn in customer spending on hardware appliances, Palo Alto’s pivot away from hardware firewalls continues to insulate the business’ financials and metrics. As part of this pivot, Palo Alto has built security solutions that serve a wide range of customer needs. In a period when customer spending on hardware firewalls is strained, Palo Alto’s non-firewall security platforms have enabled the firm to maintain a robust business pipeline and produce strong financial results.

We view Palo Alto Networks as a leader in multiple cybersecurity end markets, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations, shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

We view Palo Alto Networks as a leader in multiple cybersecurity end markets, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations, shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

We are raising our fair value estimate to $245 from $225 for wide-moat Palo Alto Networks after the firm closed out fiscal 2023 with a robust set of results coupled with medium-term sales guidance ahead of our prior estimates. Whereas competitors like Fortinet have seen macro pressures affect forward-looking metrics such as billings, Palo Alto’s forward-looking metrics remained strong for the quarter. We believe this strength is a result of the firm’s efficient go-to-market motion and its wide range of products that have helped insulate the firm from macro-induced contractions in demand. Following a sharp increase after hours, we view Palo Alto shares trading in the 3-star range following our fair value increase.

We view Palo Alto Networks as a leader in multiple cybersecurity sub-segments, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

We are raising our fair value estimate to $225 per share from $200 for wide-moat Palo Alto Networks after the firm reported yet another stellar quarter with strong top- and bottom-line results. Amidst a dreary macro backdrop, we continue to be impressed by Palo Alto’s strong execution and robust sales pipeline, which has helped insulate its financials from macro-induced contractions. With the shares up around 4% after hours, we believe Palo Alto is marginally undervalued.

We view Palo Alto Networks as a leader in multiple cybersecurity sub-segments, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

We are maintaining our $200 fair value estimate for wide-moat Palo Alto Networks after the company reported solid second-quarter results for fiscal 2023. With shares up 8% after-hours, as the firm meaningfully came ahead of FactSet consensus, we still see marginal upside for investors searching for high-quality, cybersecurity exposure. In our view, Palo Alto’s leading platform approach for network security, cloud security and security automation is prompting organizations to consolidate spending toward its products, which increases switching costs. We believe Palo Alto is well-positioned to benefit from customers becoming increasingly embedded in its ecosystem, as its sticky solutions are built for integration across an enterprise’s IT infrastructure.

We are maintaining our $200 fair value estimate for wide-moat Palo Alto Networks after the firm kicked off fiscal 2023 with strong financial results. With shares up 6% after-hours as the company beat Factset consensus estimates, we still see some upside for investors looking for high-quality, cybersecurity exposure. Palo Alto's solutions are sticky and have numerous touchpoints across an enterprise's IT infrastructure. In our view, Palo Alto's leading platform approach for network security, cloud security, and security automation is spurring organizations to consolidate spending toward its products, which increases switching costs. We anticipate the company will reap the positive effects of having customers locked into its ecosystem as it aims to achieve GAAP profitability consistently.

We are raising our fair value estimate for Palo Alto Networks to $200 from $197 as we model slightly stronger margin expansion for the firm through our explicit forecast. With shares trading around $175, we view the shares as marginally undervalued.

We view Palo Alto Networks as a leader in multiple cybersecurity sub-segments, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

Palo Alto Networks established its cybersecurity leadership through its next-generation firewall appliance altering the requirements of this essential piece of networking security. In addition, the firm’s portfolio has expanded outside of network security into areas such as cloud security and solutions to help automate security operations. We think Palo Alto's nascent threat-prevention solutions will provide robust growth and a significantly improved margin profile as customers remain locked into its ecosystem.

We are maintaining our $590 fair value estimate for wide-moat Palo Alto Networks after its strong fourth-quarter financial results topped our expectations on the bottom line. With shares up more than 8% on the robust results and strong guidance for fiscal year 2023, we see shares as fairly valued. However, we reiterate our belief that Palo Alto will continue to outpace its security peers by focusing on providing solutions in areas like cloud security and automation. Palo Alto's leading platform approach for network security, cloud security, and security automation is spurring organizations to consolidate spending toward its products, which increases switching costs, in our view. We anticipate the company will reap the positive effects of having customers locked into its ecosystem as it approaches GAAP profitability on a more consistent basis.

Palo Alto Networks established its cybersecurity leadership through its next-generation firewall appliance altering the requirements of this essential piece of networking security. In addition, the firm’s portfolio has expanded outside of network security into areas such as cloud security and solutions to help automate security operations. We think Palo Alto's nascent threat-prevention solutions will provide robust growth and a significantly improved margin profile as customers remain locked into its ecosystem.

Palo Alto Networks established its cybersecurity leadership by its next-generation firewall appliance altering the requirements of this essential piece of networking security. Its portfolio has expanded outside of network security into areas such as cloud security and solutions to help automate security operations. We think Palo Alto's nascent threat-prevention solutions will provide robust growth along with a significantly improved margin profile as customers remain locked into its ecosystem.

We are maintaining our $585 fair value estimate for wide-moat Palo Alto Networks after its strong third quarter topped our expectations for revenue growth and earnings. Shares increased by more than 10% on the robust results and guidance was boosted for fiscal year 2022. We still see shares as undervalued and expect Palo Alto to continue distancing itself from peers over the long term with share gains in core firewall as well as solutions for cloud and automation. Palo Alto's leading platform approach for network security, cloud security, and security automation is spurring organizations to consolidate spending toward its products, which increases switching costs, in our view. In turn, we think customers become further locked into Palo Alto's ecosystem and this momentum is helping the company's march toward GAAP profitability.

We are reiterating our fair value estimates for wide-moat network security vendors Check Point Software Technologies at $140, Fortinet at $340, and Palo Alto Networks at $585 after these more-established firms fell about 20% over the last month. We are also reaffirming our fair value estimates for narrow-moat cloud-based security firms CrowdStrike Holdings at $225, Okta at $280, and Zscaler at $265 after these higher-growth firms retracted by almost 40% over the last month. Our top pick is Okta, but all are trading at attractive valuations, albeit with different growth profiles.

We are maintaining our $585 fair value estimate after wide-moat Palo Alto Networks' robust second-quarter results met our lofty expectations for revenue growth and surpassed our anticipation for earnings. We believe Palo Alto shares, which popped more than 6% on the strong results and outlook raise, still offer solid upside. In our view, Palo Alto is at the forefront of enabling organizations to consolidate cybersecurity spending concerns across network security, cloud security, and security automation. By alleviating security toolset sprawl and security alert fatigue, we think Palo Alto becomes an essential part of organizations' operations and locks customers into its ecosystems for the long-term. Alongside the platform-approach that offers ample up- and cross-selling opportunities for Palo Alto, we think the company is seizing the moment of organizations rearchitecting their cybersecurity posture for hybrid work and cloud ecosystems amid a heightened threat environment.