Palo Alto Networks Numbers are Looking Good

Stock (Symbol)

Palo Alto Networks (PANW)

Stock Price

$156

Sector

Technology

Data is as of

January 30, 2018

Expected to Report

Feb 26

Company Description

PANW security platform consists of three elements: its Next-Generation Firewall, its Advanced Endpoint Protection, and its Threat Intelligence Cloud. The Company’s Next-Generation Firewall delivers application, user, and content visibility and control, as well as protection against network-based cyber threats integrated within the firewall through its hardware and software architecture. Its Advanced Endpoint Protection prevents cyber-attacks that aim to exploit software vulnerabilities on a range of fixed and virtual endpoints and servers. The Company’s Threat Intelligence Cloud provides central intelligence capabilities, security for software as a service (SaaS) applications, and automated delivery of preventative measures against cyber-attacks. Source: Thomson Financial

Sharek’s Take

Palo Alto Networks (PANW) has some good looking numbers, such as profit growth of 35% last qtr. But with a P/E of 46, I don’t consider the stock a value. Furthermore, I was holding PANW during this drop you see in the one-year chart (below). The stock got crushed after management lowered profit estimates. So I was like: should I stay or go? And with lowered estimates in the equation I sold my position. Shortly after this there was a big cyber attack around the globe and I guess cyber-security became more of a priority to companies, who then must have invested more of the budgets there. Then the next qtr the company reports profits that beat the street and management ups guidance. and the stock shoots back up to $140. Anyway, all that stays on the minds of professional money managers (me) and that brings the certainty factor down a lot. It makes the stock risky. So I’ve kinda gotta be bowled over by a stock like that to buy it back. Stocks have personalities, just like people. Some you can trust more than others. PANW is a great cyber-security company. I’d rather buy it at 35 times earnings. The company claims to be developing something state-of-the-art that competition can’t copy. If that were to turn heads this would be a stock I would probably own. 218 profit estimates have gone from $3.80 to $3.71, $3.20, $3.27, $3.33 and now $3.40 the past five qtrs.

One Year Chart

Last qtr Palo Alto reported 26% sales growth as profits increased 35%, beating the 25% estimate. Afterwards, 2018 estimates increased from $3.33 to $3.40, but that wasn’t great because that’s just a 7 cent increase and PANW just beat by 5 cents. Profits are expected to climb 25%, 33%, 14% and 24% the next 4 qtrs. That’s good growth, and the company has beaten the street the last 3 qtrs (met est 4 qtrs ago). The P/E of 46 is reasonable for this type of growth.

Fair Value

My Fair Value is 45x earnings, which puts us at the 2018 Fair Value. That’s a reason I don’t own the stock.

Bottom Line

Palo Alto Networks was a true market leader back-in-the-day. Then I bought it around $200 and it’s been under that pretty much since. Although I was shaken out around $125 I wouldn’t mind owning PANW again. If the price is right. But with FANG-type stocks having P/Es in the 20s and 30s, I don’t see the value here. Furthermore, the stock isn’t impressing me when 2018 profit estimates have declined from $3.80 to $3.40 the last 5 qtrs. Palo Alto Networks is on my radar.