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The place Will Palo Alto Networks Inventory Be in 1 Yr?

Shares of Palo Alto Networks (PANW 6.97%) popped 7% throughout the after-hours session on Nov. 17 following its newest quarterly report. For the primary quarter of fiscal 2023, which ended on Oct. 31, the cybersecurity firm’s income rose 25% yr over yr to $1.56 billion, which beat analysts’ estimates by $10 million. Its adjusted web revenue grew 56% to $266 million, or $0.83 in earnings per share (EPS), which additionally topped expectations by $0.14.

Palo Alto’s earnings beat reinforces the notion that cybersecurity leaders are well-insulated from macroeconomic headwinds. That resilience is pushed by the truth that most firms will not decrease their digital defenses merely to avoid wasting a number of {dollars}. It explains why Palo Alto’s inventory has solely declined about 10% over the previous 12 months because the Nasdaq Composite tumbled 30%.

However will Palo Alto proceed to withstand the bear market and rebound towards recent highs over the following 12 months? Let’s attempt to get a clearer image.

Picture supply: Getty Pictures.

A monitor document of rock-solid progress

Palo Alto operates three predominant ecosystems: Strata, which homes its legacy next-gen firewall and community safety companies; Prisma, which offers cloud-based safety companies; and Cortex, which focuses on artificial-intelligence risk detection instruments. Strata primarily competes in opposition to older cybersecurity companies like Verify Level Software program Applied scienceswhereas Prisma and Cortex allow Palo Alto to maintain tempo with newer cloud-based challengers like CrowdStrike Holdingsand SentinelOne.

Palo Alto serves greater than 80,000 enterprise prospects, whereas the variety of purchasers that spent at the least $1 million on bookings over the previous 4 quarters rose 59% yr over yr and 23% sequentially to achieve 1,262 within the first quarter of fiscal 2023. That ongoing enlargement has enabled it to persistently develop its income and billings by double digits whereas steadily increasing its non-GAAP (usually accepted accounting rules) working margins.

Interval

Q1 2022

Q2 2022

Q3 2022

This fall 2022

Q1 2023

Income progress (YOY)

32%

30%

29%

27%

25%

Billings progress (YOY)

28%

32%

40%

44%

27%

Non-GAAP working margin

18%

18.4%

18.2%

20.8%

20.6%

Non-GAAP EPS progress (YOY)

1%

twenty%

30%

49%

51%

Knowledge supply: Palo Alto Networks. YOY = yr over yr.

A rosy outlook for fiscal 2023

For the second quarter, Palo Alto expects its income to rise 24% to 26% yr over yr, its billings to extend 21% to 24%, and its non-GAAP EPS to climb 31% to 34% (after factoring in its 3 -for-1 inventory break up this yr).

For the complete yr, it expects income to develop 25% to 26%, its billings to enhance 20% to 22%, and its non-GAAP EPS to extend 34% to 37%. All three estimates are barely greater than its earlier steerage. To high all of it off, Palo Alto reiterated its expectations of reaching GAAP profitability for the complete yr in comparison with its web lack of $267 million in fiscal 2022.

These rosy estimates point out the corporate continues to be well-insulated from the macro headwinds that broadly hampered the expansion of much less mission-critical enterprise software program firms over the previous yr. In addition they inform us that Palo Alto’s enlargement of Prisma and Cortex, which collectively dubs its next-gen safety (NGS) companies, will proceed to drive its near-term progress and maintain it related in opposition to higher-growth firms like CrowdStrike and SentinelOne.

On a trailing-12-month foundation, Palo Alto’s NGS income rose 67% yr over yr to $2.1 billion within the first quarter and accounted for 36% of its complete income. That is up from 35% of its trailing-12-month income within the fourth quarter and simply 28% within the first quarter of 2022.

A variety of that progress was pushed by acquisitions over the previous a number of years, however the firm has additionally been reining in spending and solely making smaller acquisitions (like Bridgecrew in 2021 and Cider Safety this yr) to help the continuing enlargement of its NGS ecosystem. That more-conservative method is boosting Palo Alto’s working margins whereas proving that it operates a sustainable enterprise that is not merely pushed by large acquisitions.

So the place will Palo Alto’s inventory be in a yr?

At $167 per share, the inventory nonetheless is not low cost at 49 instances the midpoint of its non-GAAP EPS forecast for fiscal 2023. However higher-growth tech shares are usually valued by their gross sales as a substitute of their near-term income. By that measure, Palo Alto trades at seven instances this yr’s gross sales, which nonetheless makes it a discount relative to lots of its business friends. CrowdStrike, which is rising quicker than Palo Alto however is way much less worthwhile, trades at 15 instances this yr’s gross sales.

Palo Alto ought to stay a gorgeous alternative for buyers on the lookout for a wholesome steadiness of progress and worth within the cybersecurity area. As a long-term investor on this firm, I firmly imagine its inventory ought to steadily climb greater over the following 12 months because it repeatedly impresses buyers with its rock-solid progress.

Leo Solar has positions in CrowdStrike Holdings, Inc. and Palo Alto Networks. The Motley Idiot has positions in and recommends Verify Level Software program Applied sciences, CrowdStrike Holdings, Inc., and Palo Alto Networks. The Motley Idiot has a disclosure coverage.

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