Palo Alto Networks (PANW) AI Stock Analysis

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Palo Alto Networks

(NASDAQ:PANW)

74Outperform

Palo Alto Networks demonstrates strong financial performance and strategic advancements in its business operations. However, its high valuation and current technical indicators suggest caution. The company's strategic board appointments and positive earnings call outlook provide a supportive backdrop for future growth, but investors should remain aware of potential risks related to valuation and technical signals.

Positive Factors

Acquisition Strategy

The acquisition of Protect AI aligns with PANW's strategy of buying best-of-breed technology to secure the new attack surface created by Gen AI.

AI Security Leadership

This acquisition clearly puts Palo Alto Networks in a leadership position in AI security and gives the company a first-mover advantage in safeguarding emerging AI technologies.

Negative Factors

Firewall Market Growth

The firewall appliance market is expected to grow only 0-5% per annum, which may limit growth opportunities in this segment.

Market Competition

The pending acquisition of Wiz by Google presents opportunities for Palo Alto, as it may create friction with customers and concerns about Wiz's multi-cloud capabilities.

Palo Alto Networks (PANW) vs. S&P 500 (SPY)

Market Cap

$124.93B

Dividend YieldN/A

Average Volume (3M)5.66M

Price to Earnings (P/E)106.6

Beta (1Y)1.34

Revenue Growth13.86%

EPS Growth-46.44%

CountryUS

Employees15,758

SectorTechnology

Sector Strength66

IndustrySoftware - Infrastructure

Share Statistics

EPS (TTM)0.81

Shares Outstanding662,100,000

10 Day Avg. Volume4,359,098

30 Day Avg. Volume5,664,626

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)0.00

Price to Cash Flow (P/CF)0.00

P/FCF Ratio0.00

Enterprise Value/Market Cap1.03

Enterprise Value/RevenueN/A

Enterprise Value/Gross Profit21.51

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$213.40

Price Target Upside13.19% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering34

Palo Alto Networks Business Overview & Revenue Model

Company DescriptionPalo Alto Networks, Inc. is a leading global cybersecurity company known for its innovative security solutions designed to prevent cyber threats and secure the digital transformation of enterprises. Based in Santa Clara, California, the company offers a comprehensive suite of products and services, including advanced firewalls, threat detection and prevention systems, and cloud-based security solutions. Its core offerings cater to a wide range of industries, helping organizations protect their data and maintain secure operations in an increasingly connected world.

How the Company Makes MoneyPalo Alto Networks generates revenue primarily through the sale of its cybersecurity products and associated subscription services. The company offers advanced firewall appliances and software, which form a significant portion of its revenue. In addition to hardware sales, the company provides software subscriptions that offer ongoing threat intelligence, malware prevention, and security analytics, supporting a recurring revenue model. Professional services, including consulting, education, and support, also contribute to its earnings. Key partnerships with other technology providers and integrators help expand its market reach and enhance its product offerings, further bolstering its revenue streams.

Palo Alto Networks Key Performance Indicators (KPIs)

Any

Billings

Billings
Measures the total value of invoices sent to customers in a period, providing a forward-looking indicator of revenue growth and sales momentum.

Chart InsightsPalo Alto Networks' billings have shown strong growth, particularly in the latest quarter, reflecting strategic advancements and robust demand for their Next-Generation Security offerings. The earnings call highlighted a 37% increase in NGS ARR, supporting this momentum. However, concerns about gross margin pressures and deferred payments affecting cash flow visibility could pose risks. The company's focus on platformization and AI-driven initiatives is expected to sustain growth, but investors should watch for how these factors impact long-term profitability and cash flow management.

Data provided by:

Main Street Data

Palo Alto Networks Financial Statement Overview

Summary

Palo Alto Networks showcases strong revenue growth and efficient cost management, with a robust cash generation capability. The company maintains a low leverage and solid return on equity, enhancing its financial stability. While there are minor concerns regarding increased liabilities and a dip in net income, the overall financial trajectory remains positive.

Income Statement

Very Positive

Palo Alto Networks has shown strong revenue growth, with a significant increase in Total Revenue from $8.03 billion in 2024 to $8.57 billion in TTM (Trailing-Twelve-Months). The Gross Profit Margin is robust at 73.9%, indicating efficient cost management. The Net Profit Margin is healthy at 14.6%, and both EBIT and EBITDA margins have improved compared to the previous year, reflecting enhanced operational efficiency. However, the decrease in Net Income from 2024 is a concern, which slightly offsets the overall positive performance.

Balance Sheet

Positive

The company maintains a solid financial position with a Debt-to-Equity Ratio of 0.14, indicating low leverage. The Return on Equity (ROE) is a strong 19.7%, showcasing efficient utilization of equity to generate profits. The Equity Ratio stands at 30.4%, reflecting a stable capital structure. While the overall balance sheet is strong, the slight increase in total liabilities requires monitoring to ensure financial stability.

Cash Flow

Very Positive

Operating Cash Flow is robust at $3.11 billion, demonstrating strong cash generation capability. The Free Cash Flow to Net Income Ratio is particularly impressive, highlighting effective cash management strategies. The Free Cash Flow Growth Rate is consistent, further reinforcing the company's ability to support growth and investment activities through internally generated funds. The cash flow statement presents a very positive picture, with minimal concerns.

Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Breakdown
Income Statement		Total Revenue
8.03B	6.89B	5.50B	4.26B	3.41B
	Gross Profit
5.97B	4.98B	3.78B	2.98B	2.41B
	EBIT
683.90M	387.30M	-188.80M	-304.10M	-179.00M
	EBITDA
1.28B	387.30M	95.60M	-46.60M	364.80M
	Net Income Common Stockholders
2.58B	439.70M	-267.00M	-498.90M	-267.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
2.58B	2.39B	3.63B	2.90B	3.75B
	Total Assets
19.99B	14.50B	12.25B	10.24B	9.07B
	Total Debt
1.41B	2.27B	3.95B	3.54B	3.42B
	Net Debt
-124.90M	1.14B	1.83B	1.67B	462.70M
	Total Liabilities
14.82B	12.75B	12.04B	9.48B	7.96B
	Stockholders Equity
5.17B	1.75B	210.00M	763.60M	1.10B
Cash Flow		Free Cash Flow
3.10B	2.63B	1.79B	1.39B	821.30M
	Operating Cash Flow
3.26B	2.78B	1.98B	1.50B	1.04B
	Investing Cash Flow
-1.51B	-2.03B	-933.40M	-1.48B	288.00M
	Financing Cash Flow
-1.34B	-1.73B	-806.60M	-1.10B	673.00M

Palo Alto Networks Technical Analysis

Technical Analysis Sentiment

Positive

Last Price188.53

Price Trends

50DMA

177.39

Positive

100DMA

182.67

Positive

200DMA

180.62

Positive

Market Momentum

MACD

4.16

Negative

RSI

62.28

Neutral

STOCH

80.56

Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For PANW, the sentiment is Positive. The current price of 188.53 is above the 20-day moving average (MA) of 177.36, above the 50-day MA of 177.39, and above the 200-day MA of 180.62, indicating a bullish trend. The MACD of 4.16 indicates Negative momentum. The RSI at 62.28 is Neutral, neither overbought nor oversold. The STOCH value of 80.56 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for PANW.

Palo Alto Networks Risk Analysis

Palo Alto Networks disclosed 47 risk factors in its most recent earnings report. Palo Alto Networks reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Palo Alto Networks Peers Comparison

Overall Rating

UnderperformOutperform

Sector (60)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
CHKP	77 Outperform	$23.58B	29.07	30.92%	―	6.40%	6.49%
CRWD	76 Outperform	$109.86B	721.64	-0.69%	―	29.39%	-119.62%
PANW	74 Outperform	$124.93B	106.60	23.38%	―	13.86%	-46.44%
ZS	74 Outperform	$36.07B	―	-1.21%	―	27.77%	89.39%
FTNT	72 Outperform	$82.39B	47.41	205.91%	―	13.83%	58.13%
NET	61 Neutral	$42.44B	―	-8.71%	―	28.76%	58.13%
Sector *	60 Neutral	$10.83B	10.47	-6.71%	2.99%	7.73%	-12.97%

* Technology Sector Average

Performance Comparison

PANW

Palo Alto Networks

188.53

39.79

26.75%

CHKP

Check Point

220.67

69.10

45.59%

FTNT

Fortinet

97.74

39.58

68.05%

Zscaler

233.15

58.53

33.52%

CRWD

CrowdStrike Holdings

428.63

107.87

33.63%

NET

Cloudflare

124.31

52.39

72.84%

Palo Alto Networks Earnings Call Summary

Earnings Call Date:Feb 13, 2025

(Q2-2025)

% Change Since: -6.61%|

Next Earnings Date:May 20, 2025

Earnings Call Sentiment Positive

The earnings call presented a positive outlook with strong revenue growth, significant progress in platformization, and robust performance across various business segments. However, there were concerns regarding gross margin pressures and the impact of deferred payments on cash flow visibility.

Q2-2025 Updates

Positive Updates

Strong Revenue Growth

Total revenue for Q2 2025 was $2.26 billion, growing 14% year-over-year, above the high end of guidance.

Impressive Platformization Progress

Approximately 75 new platformizations in Q2, up from 45 a year ago, with over 1,150 total platformizations among the top 5,000 customers.

NGS ARR Growth

NGS ARR grew 37% to $4.78 billion, driven by strong performance across advanced subscriptions, SaaS, and Cortex.

Large Deal Success

74 accounts with transactions over $500,000, up 25% year over year, and 32 accounts with transactions over $10 million, up over 50%.

Global Expansion

Double-digit revenue growth across all theaters: Americas up 13%, EMEA up 18%, and JPAC up 17%.

Innovation in AI and Cloud Security

Introduction of Cortex Cloud, merging Prisma Cloud with CDR capabilities, offering enhanced AI-powered cloud security solutions.

Negative Updates

Gross Margin Pressure

Gross margin at 76.6%, slightly down due to newer SaaS offerings not yet achieving scale and higher-than-typical inventory and product transition costs.

Deferred Payments Impact

Increase in deals with deferred payments, which affects cash flow visibility and management.

Operating Margin Concerns

Operating expenses as a percentage of revenue decreased by only 120 basis points, indicating potential room for improvement in cost management.

Company Guidance

During the conference call for Palo Alto Networks, Inc.'s second quarter of fiscal year 2025, the company provided updated guidance reflecting strong financial performance and strategic advancements. The company reported total revenue of $2.26 billion, a 14% year-over-year increase, with product revenue growing by 8% and services revenue by 16%, supported by a substantial 20% rise in subscription revenue. The company highlighted a robust performance in its Next-Generation Security (NGS) Annual Recurring Revenue (ARR), which grew by 37% to reach $4.78 billion, driven by strength across advanced subscriptions, SaaS, and Cortex. Operating margins surpassed internal targets, prompting an increase in full-year operating margin guidance to a range of 28% to 28.5%. The company also projected diluted non-GAAP EPS for the fiscal year to be between $3.18 and $3.24, marking a 12% to 14% increase. Free cash flow generation remained strong, with expectations of an adjusted free cash flow margin between 37% and 38% for the year. Looking forward, Palo Alto Networks, Inc. anticipates revenue for fiscal year 2025 to range between $9.14 billion and $9.19 billion, reflecting a 14% increase, while continuing to capitalize on its platformization strategy and AI-driven initiatives to maintain momentum and drive future growth.

Palo Alto Networks Corporate Events

Executive/Board ChangesBusiness Operations and Strategy

Palo Alto Networks Expands Board with Notable Appointments

Positive

Feb 13, 2025

On February 12, 2025, Palo Alto Networks appointed Helle Thorning-Schmidt, former Prime Minister of Denmark, and Ralph Hamers, former CEO of UBS Group AG and ING Group, to its Board of Directors as Class II directors. With these appointments, the board expands from nine to eleven members, reflecting the company’s strategic effort to enhance its global reach and secure its position as a cybersecurity leader. Both appointees bring extensive experience in political and business landscapes, expected to influence the company’s strategic direction and strengthen its industry position.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.