Palo Alto Networks is the IBD Stock Of The Day for Tuesday. Shares are surging after the cybersecurity company posted stronger-than-expected revenue and earnings for its fiscal fourth quarter late Monday.
On the stock market today, Palo Alto stock advanced 7.2% to close at 368.01. Shares have gained about 25% this year after racking up a 111% gain in 2023.
In morning trades on Tuesday, Palo Alto stock cleared an early-entry buy point of 345.90. It is now approaching an official buy point of 380.84 out of a 28-week consolidation pattern, according to MarketSurge charts.
Founded in 2005, Palo Alto Networks has expanded from firewall network security to offer a broader platform of enterprise-level cybersecurity products.
Palo Alto Stock: 'Robust' July Quarter
For its fiscal fourth quarter ended July 31, Palo Alto's adjusted earnings per share rose 5% to $1.51. Analysts had forecast adjusted EPS of $1.41, according to FactSet.
Meanwhile, Palo Alto's sales increased 12% to $2.2 billion, ahead of the $2.16 billion in revenue analysts expected from the company.
The Santa Clara, Calif.-based company also announced a $500 million stock-buyback authorization.
In a news release, Palo Alto Networks Chief Executive Nikesh Arora said the company finished its fiscal year with "strong execution on our platformization strategy."
Platformization refers to a strategy from the company to bundle some products into discounted packages to win clients over to its broader suite of services. Palo Alto Networks stock tumbled when the company detailed the strategy in February. Some investors feared it would set off a price war among cybersecurity players.
But Palo Alto stock bulls on Wall Street saw Monday's results as a point in favor of the strategy.
"We continue to believe the platform approach in cybersecurity is the right long-term move for PANW and will ultimately emerge from this transition in a stronger market position with last night's strong quarter and outlook a key step forward," Wedbush Securities analyst Daniel Ives said in a client note early Tuesday.
Citing the company's "robust performance and solid outlook," Ives reiterated an outperform rating for Palo Alto stock. He raised his price target to 400 from 375.
Palo Alto Outlook For Fiscal 2025
Palo Alto projected it would post an adjusted profit of $1.48 per share for the current quarter ending in October. That beat expectations of $1.42 per share.
The company also gave a slightly better-than-expected revenue forecast for the current quarter. It expects sales of $2.10 billion to $2.13 billion, compared with projections of $2.1 billion.
Beyond those numbers, Palo Alto Networks also projected remaining performance obligation, or RPO, growth of 19% to 20% for its fiscal 2025. The company said it is shifting from offering guidance on total billings to instead focus on RPO. The new metric is the total value of contracted revenue that is not yet fulfilled or recognized on financial statements.
UBS analyst Roger Boyd said the RPO guidance was "maybe a hair below expectations." He is neutral on Palo Alto stock but bumped up his price target to 355 from 345.
"A more positive outlook on free cash flow (guided 37%-38% margin for fiscal year 2025) is likely helping shares, despite a growth outlook that looks materially lower than what the company laid out a year ago," Boyd said in a client note Tuesday.
Palo Alto Stock: Technical Ratings
Palo Alto stock holds an IBD Composite Rating of 89 out of a best-possible 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Shares of Palo Alto have a Relative Strength Rating of 81 out of 99. The score indicates PANW is outperforming 81% of stocks tracked by IBD over the past 52 weeks.
Meanwhile, Palo Alto stock has an Accumulation/Distribution Rating of C-. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates roughly equal buying and selling.
