6 Reasons to Retain Palo Alto (PANW) Stock in Your Portfolio

Shares of Palo Alto Networks Inc. PANW, a provider of network security solutions to enterprises, service providers and government entities worldwide, have been performing well of late.

If you haven’t taken advantage of the share price appreciation yet, its time you hold the stock in your portfolio as it looks promising and is poised to carry the momentum ahead. This Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 24.6%.

Estimates Northbound

Estimates for Palo Alto Networks have moved up in the last 30 days, reflecting the optimistic outlook of analysts. The earnings estimates for fiscal 2018 and 2019 have gone up in the last 30 days.

For fiscal 2018, the Zacks Consensus Estimate for earnings has risen by 7 cents in the last 30 days and is pegged at $3.39. The Zacks Consensus Estimate for fiscal 2019 also moved north by 3 cents to $4.18.

Positive Earnings Surprise History

Palo Alto Networks outpaced the Zacks Consensus Estimate in the trailing four quarters, recording an encouraging positive average earnings surprise of 9.5%.

Ahead of the Industry

Palo Alto Networks stock has gained 27.6% in the past six months, outperforming 4.3% rally of the industry it belongs to.

Upbeat Q1

Palo Alto Networks started fiscal 2018 on a solid note with better-than-expected results in the first quarter. The company’s earnings and revenues surpassed the Zacks Consensus Estimate and also improved year over year.

Strong quarterly results were mainly driven by healthy demand environment, new product launches and increasing adoption of the company’s next-generation security platforms.

The company’s revenues of $505.5 million surged 27% year over year and outpaced the Zacks Consensus Estimate of $489 million. In fact, the top line came above the guided range of $482-$492 million.

The year-over-year increase was primarily driven by customer additions along with new product launches. Additionally, the company stated that the successful execution of its 'land and expand' go-to-market model has helped it in acquiring new clients. It also managed to increase existing customers’ expenditures, which contributed to overall growth. In the reported quarter, the company added over 2,500 new customers.

On a per share basis, the company reported non-GAAP earnings of 74 cents marking year-over-year growth of 34.5%. Quarterly earnings also surpassed the Zacks Consensus Estimate of 68 cents as well as the company’s projected range of 67-69 cents.

Strong Guidance

Buoyed by marvelous first-quarter performance, the company provided impressive guidance for the forthcoming quarter and also raised fiscal 2018 outlook.

Palo Alto Networks raised outlook for fiscal 2018. The company now expects revenues to be in the range of $2.145-$2.185 billion, an improvement of 22-24% year over year compared with $2.125-$2.165 billion, projected earlier. The Zacks Consensus Estimate was pegged at $2.15 billion.

Non-GAAP earnings per share are expected to be in the $3.35-$3.41 band (mid-point $3.38 per share), up from $3.24-$3.34, anticipated earlier. The Zacks Consensus Estimate was pegged at $3.31 per share.

For the fiscal second quarter, Palo Alto anticipates revenues in a range of $518-$528 million, up 23-25% year over year. The Zacks Consensus Estimate was pegged at $520 million. Non-GAAP earnings per share are expected to be in the range of 78-80 cents. The Zacks Consensus Estimate was pegged at 77 cents.

Growth Drivers

Revenue growth seems to be steadily aided by strength across all its geographical regions and business segments. Customer wins along with expansion of the company’s existing customer base are added positives. We believe that its product refreshes and acquisition synergies might boost top-line growth.

Going forward, Palo Alto Networks is keen on expanding cloud exposure. To this end, the company recently expanded ties with VMware, Inc. Through the new collaboration, the company will combine its security platform with VMware’s software platform, which provides private cloud-based service to make the cloud-computing environment more secure, simple, flexible and efficient.

This deal is expected to better equip organizations to handle private cloud technology and control business applications securely. As VMware remains one of the leading companies in the virtualization and cloud computing space, we believe Palo Alto Networks might gain significantly from this collaboration.

Nonetheless, a volatile spending environment and competition from Cisco Systems, Inc. CSCO and Check Point Software Technologies Ltd. CHKP remain concerns.

Stock to Consider

A better-ranked stock in the broader technology sector is NVIDIA Corporation NVDA, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA has a long-term earnings per share growth rate of 11.2%.

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