Palo Alto Earnings: Despite the Near-Term Murkiness, We Think the Future Is Bright

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.