Why Is Palo Alto Networks (PANW) Up 6% Since the Last Earnings Report?

It has been more than a month since the last earnings report for Palo Alto Networks, Inc. PANW. Shares have added about 6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Palo Alto Networks Beats on Q4 Earnings & Revenues

Palo Alto Networks reported better-than-expected fourth-quarter fiscal 2017 results. Palo Alto Networks reported adjusted earnings per share (excluding stock-based compensation, amortization and other one-time items) of 92 cents, surpassing the Zacks Consensus Estimate of 79 cents.

Quarter Details

Palo Alto Networks’ revenues of $509.1 million surged 27% year over year and outpaced the Zacks Consensus Estimate of $487 million. The quarterly revenues came above the guided range of $481-$491 million. The year-over-year increase was primarily due to new customer addition along with latest product launches. During the quarter, the company added around 3,000 new customers.

Product revenues increased 11.1% to $212.3 million. The company witnessed a 41.5% surge in subscription and support revenues ($296.8 million). SaaS-based subscription revenues climbed 46% from the year-ago period. Support revenues increased 37% year over year.

Billings jumped 17% year over year to $670.8 million during the quarter.

Geographically, on a year-over-year basis, revenues from the Americas increased 27%. The figures from Europe, the Middle East and Africa (EMEA) went up 28% while Asia-Pacific was up 27%.

Palo Alto Networks’ adjusted gross margin decreased 210 basis points (bps) on a year-over-year basis to 77.3% owing to higher cost of sales and launch of new products in the last quarter.

The company reported adjusted operating margins of 23.7% during the quarter. Adjusted operating expenses during the quarter were $273 million, or 53.6% of revenues. The company’s adjusted net income was $85.5 million compared with $60.3 million reported last year.

Palo Alto Networks exited the fourth quarter with cash, cash equivalents and short-term investments of approximately $1.375 billion compared with $1.372 billion in the previous quarter.

Receivables were $432.1 million compared with $364.1 million in the last quarter. Palo Alto Networks’ balance sheet does not have any long-term debt. The company reported cash flow from operations of $239.5 million during the quarter. Free cash flow came in at $190.3 million during the quarter. In the same period, the company repurchased 0.9 million shares worth $134.60 million.

Fiscal 2017 Highlights

For fiscal year 2017, total revenues increased 28% and came in at $1.8 billion. Total customer bases for fiscal 2017 grew to more than 42,500. Adjusted earnings per share came in at $2.71 per shares compared with $1.89 per share reported in fiscal year 2016.

Guidance

For first-quarter fiscal 2018, Palo Alto Networks expects revenues in a range of $482-$492 million, up 21-24% year over year. Product revenue is expected to in the range of $170-$173 million, up 4-6%, while billings are projected to lie between the range of $580-$600 million, an increase of 12-16%. The company expects non-GAAP earnings per share within 67-69 cents.

For fiscal 2018, the company expects revenue to be in the range of $2.125-$2.165 billion, an increase of 21-23% year over year.  Product revenue is expected to in the range of $735-$750 million, up 4-6%, while billings are projected to lie between the range of $2.64-$2.7 billion, an increase of 15-18%. The company expects non-GAAP earnings per share within $3.24-$3.34 (mid-point $3.29 per share).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

Palo Alto Networks, Inc. Price and Consensus

 

 

Palo Alto Networks, Inc. Price and Consensus | Palo Alto Networks, Inc. Quote

VGM Scores

At this time, Palo Alto Networks' stock has a great Growth Score of A,  though it lags on the momentum front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for growth investors than momentum investors.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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