Analyst Note| Mark Cash |
We are maintaining our $400 fair value estimate for narrow-moat Palo Alto Networks after its third-quarter results, and view shares as modestly undervalued. While most cybersecurity participants are being lifted by an elevated threat environment and headline breaches spurring security spending, we believe Palo Alto’s platform approach to various parts of security are driving market outperformance. We expect Palo Alto’s heavy investments into cloud security and automation, fueled by the core firewall business’ strong free cash flow generation, to drive strong growth and keep customers locked into the Palo Alto ecosystem. While we do not expect positive GAAP net income for a few more years, we believe the organization is properly investing to stake its claim within the embryonic cloud security and automation markets, prior to showcasing solid margin expansion throughout the decade.