Skip to content

A Nicely Oiled Machine That Retains Shocking To The Upside: Palo Alto Networks (NASDAQ:PANW)

Field firm. It is a field firm.

Irina Gutyryak

DISCLAIMER: This notice is meant for US recipients solely and, particularly, just isn’t directed at, nor meant to be relied upon by any UK recipients. Any info or evaluation on this notice just isn’t a proposal to promote or the solicitation of a proposal to purchase any securities. Nothing on this notice is meant to be funding recommendation and nor ought to or not it’s relied upon to make funding choices. Cestrian Capital Analysis, Inc., its workers, brokers or associates, together with the writer of this notice, or associated individuals, could have a place in any shares, safety, or monetary instrument referenced on this notice. Any opinions, analyses, or chances expressed on this notice are these of the writer as of the notice’s date of publication and are topic to alter with out discover. Firms referenced on this notice or their workers or associates could also be prospects of Cestrian Capital Analysis, Inc. Cestrian Capital Analysis, Inc. values ‚Äč‚Äčeach its independence and transparency and doesn’t consider that this presents a fabric potential battle of curiosity or impacts the content material of its analysis or publications.

The Field Is Useless, Lengthy Dwell The Field!

As everybody is aware of, you do not wish to personal {hardware} techniques firms. Low ranges of mental property, horrible steadiness sheets rising from stock and all that quaint stuff, poor gross margins, no income visibility, and weak to being eroded by the following field firm that comes together with a sharp-looking case and a pair fancy ASICs inside.

We agree with this.

It is simply that the logic does not apply to Palo Alto Networks, which is a field firm. And that is as a result of the administration crew have labored very onerous to wash all hint of your common field firm economics from the monetary statements. Not in an FTX/SB-F – type of method; in a let’s-just-make-the-economics higher type of method.

Here is the numbers as much as and together with the quarter simply reported (ending 31 October 2022), plus administration’s information for the following quarter (ending 31 Jan 2023).

PANW Financials

PANW Financials (Firm SEC filings)

This factor is a machine.

The corporate does not publish all of its numbers till the 10-Q is out in a pair days (the orange cells above present the place we now have used trend-based estimates). We’ll replace this text as soon as the total set is accessible – they will not change the story, which is:

  • TTM income development sits at 28% vs. peak TTM development of 30% two quarters in the past; quarter vs. PY quarter development at 25% vs. peak of 32% this time final 12 months. That is very robust in comparison with different tech firms – have a look at NVDA as an illustration (right here).
  • TTM EBITDA simply hit an all time excessive of c.$1.2bn.
  • TTM unlevered pretax money movement was within the area of $1.3-1.4bn (will replace as soon as we now have the true change in working capital and depreciation numbers) which is near a report excessive.
  • The corporate has >$2.2bn internet money on the steadiness sheet and has over $7bn of already-invoiced future income – that is the deferred income component – on the books. Which implies that one thing like 1.2x TTM income has already been bought. Good.
  • The entire e-book of signed contracts (RPO, = the deferred income plus contracts which have but to be billed to prospects) we do not have but however we count on will exceed $8bn, within the area of 1.5x TTM income.

Here is that RPO knowledge as much as final quarter – once more we’ll replace when the total 10-Q is printed.

Financial Table PANW

Monetary Desk PANW (Firm SEC filings)

And this is the valuation the market is asking you to pay.

PANW Valuation

PANW Valuation (Firm SEC filings)

8x income and 33x money movement in change for 28% development and strong money movement margins. That is punchy however not horrible for patrons.

The inventory gives a pleasant threat/reward setup in the event you do not thoughts shopping for at Wave 4 lows (often higher to purchase at Wave 2 lows as a result of the chance/reward degree is to your profit).

You’ll be able to open a full web page model of this chart, right here.

PANW Chart

PANW Chart (Pattern Spider)

We predict a great way to play this title is to purchase round right here ($157ish) with a stop-loss-limit positioned someplace shut under that W4 low, and to gun for a value goal of $250 or so, which might imply the W5 goal can be across the 0.618 extension of Waves 1+3 mixed.

Simply preserve reminding your self it is a field firm and that at some point it is going to be devoured by software program. Simply not at present.

Cestrian Capital Analysis, Inc – 17 November 2022.

Leave a Reply

Your email address will not be published. Required fields are marked *