Shares of cybersecurity company Palo Alto Networks (NASDAQ:PANW) fell sharply after the company slashed its full-year Fiscal 2024 revenue and billings guidance in February, citing a shift in strategy. Despite near-term pressures, several analysts remain bullish on PANW stock based on the company’s ability to capture the strong demand in the cybersecurity space amid rising geopolitical tensions and the rapid growth of artificial intelligence (AI).
PANW Faces Near-Term Headwinds
Palo Alto reported better-than-expected results for the second quarter of Fiscal 2024, registering revenue growth of 19%. However, investors were spooked by the full-year guidance cut, with the company now expecting revenue in the range of $7.95 billion to $8 billion. The revised outlook represents revenue growth between 15% and 16%, down from the previous guidance of 18% to 19% growth.
The company explained that the lower guidance resulted from the transition in its strategy to “accelerate both our platformization and consolidation and activating our AI leadership.” The company aims to address the customers’ requirement to deal with a single vendor who can provide them an array of products instead of working with multiple vendors.
PANW’s performance and outlook were also impacted by a slump in the U.S. federal government business. The company cautioned that it expects this weakness to continue in the Fiscal third and fourth quarters.
While the company warned of the near-term impact of its strategy shift, it is optimistic that this transition will accelerate its top-line growth over the long term and help it achieve its goal of generating $15 billion of revenue from its next-generation security offerings by Fiscal 2030.
Analysts Optimistic About Palo Alto’s Growth Potential
Following a meeting with Palo Alto’s management earlier this month, Baird analyst Shrenik Kothari reiterated a Buy rating on PANW stock with a price target of $335.
The analyst said that he appreciates the company’s comprehensive platform approach, which indicates a shift from “trading in sprinter’s shoes for short-term gains to embracing a marathon strategy aimed at achieving bigger and longer-term success.”
Kothari added that the company’s approach will not only help it win larger deals faster but also position it as a leader in the cybersecurity space, capable of offering integrated, comprehensive solutions that meet customers’ evolving needs amid intense rivalry from specialized platforms like CrowdStrike (NASDAQ:CRWD).
Like Kothari, Argus analyst Joseph Bonner is also positive about the company’s new go-to-market strategy and increased his price target for PANW stock to $336 from $290.
Bonner believes that Palo Alto continues to have an edge over its cybersecurity peers, backed by its best-in-class technology integrated into a comprehensive cybersecurity platform. Moreover, it has an aggressive product innovation cycle, focused on next-generation cloud security, secure access at the service edge (SASE), and automated security operations.
Is PANW Stock a Good Buy?
Palo Alto has a Moderate Buy consensus rating based on 29 Buys versus 11 Hold recommendations. The average PANW stock price target of $333.92 implies about 20% upside from current levels. Shares have rallied 43% in the past year.
Conclusion
Palo Alto’s new go-to-market strategy might hit its revenue over the short term. Nonetheless, most analysts are confident about the company’s ability to execute its strategic plan and build a dominant position in the cybersecurity market.
