Analyst Note| Mark Cash |
Palo Alto Networks’ 25% year-over-year revenue growth in the second quarter surpassed our expectations as sales pushed above the $1 billion threshold for the first time. We believe investor concerns surrounding the firewall transition from hardware to software and Palo Alto’s ability to grow outside of firewall can be pacified. The firewall business continues to generate abundant free cash flow, whether in physical or virtual forms, which is fueling the higher growing cloud and automation security solutions. We are raising our fair value estimate to $400 from $345 per share, as we expect higher revenue growth and an improved margin profile emanating from next generation security products over the longer term. Shares of this narrow-moat cybersecurity stalwart are slightly undervalued, in our view.