Company Reports

We view Palo Alto Networks as a leader in the cybersecurity space, with cybersecurity platforms spanning network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key endmarkets 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 the broad range of its cybersecurity solutions have helped Palo Alto build a wide economic moat around its business.

We are maintaining our $366 fair value estimate for wide-moat Palo Alto Networks after the firm closed out its fourth quarter with a strong set of quarterly results and robust guidance for upcoming fiscal 2025, largely in line with our prior estimates. Much like the last couple of quarters, we were encouraged by Palo Alto’s progress in its platformization strategy as it seeks to consolidate more of its customers’ spending on its cybersecurity platforms. We believe this strategy, which dovetails with an increased customer appetite to reduce security vendor sprawl, will serve Palo Alto well in the long term despite creating near-term volatility in specific metrics such as billings. With Palo Alto shares marching up more than 10% since its last quarterly report, we view the firm’s shares as fairly priced and trading in the 3-star range.

Multiple news outlets have reported that Alphabet, the parent company of Google, is nearing a deal to acquire Wiz, a cloud security startup, for roughly $23 billion. Not only would this deal value Wiz around $11 billion higher than its most recent valuation in May 2024, but it also would be Alphabet's largest-ever acquisition, more than four times the size of the acquisition of Mandiant in 2022, which was the firm's last major cybersecurity acquisition. With increased vendor consolidation on the horizon, we view Alphabet's potential entry into security as a positive sign for the overall industry.

We raise our fair value estimate for wide-moat Palo Alto Networks to $366 per share from $300. While strong quarterly results, with better-than-expected profitability, drove some of the fair value increase, the majority of our fair value uptick is due to our increased confidence in Palo Alto’s platformization strategy, which is showing early signs of success. We disagree with investors’ overemphasis on the firm’s billings, which remain affected by its decision to offer bundling discounts to existing customers. Instead, we’d point investors to longer-term secular tailwinds, which, in our opinion, will help Palo Alto regain its status as the first $100 billion pure-play cybersecurity 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 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.