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Why Palo Alto Remains a Wall Street Favorite

The cybersecurity sector is never away from the spotlight. Back-to-back threats like the fear of Russian cyber retaliation, and incidents like the recent Lapsus$ attack at Okta (OKTA) underscored the importance of prioritizing cybersecurity.

BTIG analyst Gray Powell and his associates recently conducted a field check on the sector, assessing and gathering feedback on five cybersecurity players, namely Palo Alto Networks (NASDAQ: PANW), Fortinet (FTNT), Check Point (CHKP), Zscaler (ZS), and Tenable (TENB).

Palo Alto Takes the Crown

Among the five companies on his radar, Powell picked Palo Alto as the one with the best prospects, although each one of them had encouraging upsides.

Partner companies across multiple product categories testified that demand for Palo Alto’s core firewall is very strong. This demand is boosting the company’s attach rates with new subscriptions.

Although the cybersecurity leader is yet to complete its third quarter of Fiscal 2022, which ends with April, Powell expects Palo Alto to beat Street’s billings estimate of 25% year-over-year growth.

“In an upside scenario, we think 30%+ y/y growth is achievable,” noted Powell, encouraged by the “the potential for an upside bias to growth forecasts.”

What Respondents Had to Say

Partners raved how much they were able to scale their security revenues by partnering with Palo Alto.

A large global system integrator described its experience with Palo Alto during Q1 of 2022 with one word — “wow.” Partnering with Palo Alto to expand its security business allowed the company to secure several multi-year deals. Most importantly, the partner was able to beat its total budget by double digits, and look forward to a strong pipeline of deals ahead.

An industry analyst, however, pointed out that Palo Alto’s price increases have been a slight overhang lately, along with the fact that the company is offering lesser discounts than before, making its products about 15% more expensive now than it was last year.

Nonetheless, the multiple upsides, including focused product innovations and value additions are overshadowing the small setbacks here and there.

Based on the feedback, Powell determined that the strong demand momentum in Palo Alto’s Prisma security package, including Prisma Cortex, Prisma Access, and Prisma Cloud, was higher than his previously conducted field research.

Notably, Prisma is a suite of cloud security products that offers access control, advanced threat protection, and other services all through a single platform.

Encouraged by the solid prospects, Powell reiterated a Buy rating on the PANW stock and raised his price target to $720 from $610.

How Close Are the Nearest Peers?

Two of Palo Alto’s strongest contenders, Fortinet and Check Point, had fairly good reviews. However, both the companies have ample rooms for improvement.

Companies that partnered with Fortinet mostly had positive reviews about their deals with the latter. However, few partners reported a decline in their business with Fortinet.

Moreover, the fact that Fortinet lacks a credible Firewall-as-a-service product, something which has become key to secure enterprise networks nowadays with increased activities on the cloud, is a drawback.

Check Point, on the other hand, is struggling to gain customers, and is doing OK with regards to upselling its existing products like its SASE (secure access service edge) platform Harmony Connect, which has strong demand.

Meanwhile, Palo Alto continues its upward journey. When it is not innovating, it is gobbling up smaller cybersecurity players specializing in niche domains.

While it is increasing its prices, it is also adding more value to its services. In all aspects, Palo Alto seems to be the undisputed winner in this space.

The consensus of Wall Street analysts seems equally bullish on Palo Alto, with a Strong Buy rating based on 20 Buys and two Holds. The PANW stock predictions point to an average price target of $633.32.

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