Call it the great Palo Alto Networks guessing game ahead of the cybersecurity firm's unusual timing for reporting fiscal fourth-quarter results. Earnings for PANW stock are due after the market close on Friday, and will be followed by an extended call with Wall Street analysts.
Palo Alto stock plunged on Aug. 2. That's when it announced its plan to report results on the afternoon of Aug. 18. It also expects to provide a fiscal 2024 outlook, and update medium-term financial targets through 2026.
Palo Alto typically reports on a Monday or Tuesday during the fourth week of the month. And companies rarely, if ever, report once the trading week is over on Friday.
There's more fuel for Wall Street's angst. After Palo Alto's surprise announcement, rival Fortinet on Aug. 3 reported second-quarter results that missed on revenue and billing.
That raised investor worries that bad news is coming for PANW stock. So analysts have lowered estimates heading into the Palo Alto earnings report.
In the July quarter, analysts now predict 61% earnings growth to $1.29 a share with revenue climbing 26% to $1.96 billion.
Palo Alto stock edged up to 215.30 on the stock market today.
PANW Stock Up 54% For 2023
PANW stock has retreated 15% in August but shares have stabilized this week. And the stock is still up 54% for 2023.
Whether the company beats or misses estimates likely will not move the stock, say Wall Street analysts. Some are expecting its outlook for fiscal 2024 to miss expectations. One question is whether its updated financial targets through fiscal 2026 will ease investor worries over fiscal 2024.
"We lean more toward expecting a strategic and operational reveal that likely requires some time to digest, and possibly for analysts to rebuild financial models," Deutsche Bank analyst Brad Zelnick said in a note to clients.
Aiming to ease worries, Palo Alto sent analysts an email stating: "While not conventional timing, this is the optimal date given other important company events, including sales kickoff the following week."
Zelnick speculates that Palo Alto could "announce it will no longer sell hardware."
With roots in the "firewall" network security market, Palo Alto has built a broad cloud-based security platform. Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps.
Palo Alto Stock: Updated Three-Year Targets
Here's a sampling of what some other Wall Street analysts are saying in their notes to clients ahead of the Palo Alto earnings report.
TD Cowen analyst Shaul Eyal: "In our view, should the new midterm guide on billings fall short of the fiscal 2025 consensus of $12.7 billion, bears are likely to point to the stock's relatively high valuation."
BMO Capital Markets analyst Keith Bachman: "We believe the focus of the upcoming Friday night earnings call is more so the fiscal 2024 guide and less so the quarter. In our opinion, investor expectations for 2024 guidance metrics include midteens billings growth and mid-30% free cash flow margins."
JPMorgan analyst Brian Essex: "We expect incremental detail on a framework for efficient growth as management targets doubling the company over the next three to five years with less reliance on head count and operating expense growth. We believe management will focus on balancing any weakness with fiscal 2024 guidance with a healthy midterm outlook."
And Goldman Sachs analyst Gabriela Borges: "We expect Palo Alto to guide fiscal 2024 revenue about in line with the Street, billings/free cash flow slightly below the Street and EPS above the Street."
In addition, Borges expects Palo Alto to lower its midterm outlook for free cash flow margins.
Is Earnings Call De-Risked With August Pullback?
Jefferies analyst Joseph Gallo says the August sell-off of PANW stock may make shares less volatile.
"We still think there is some risk with fiscal 2024 guidance likely being very challenged and consensus fiscal 2026 FCF feeling high," he said in a note.
At Raymond James, analyst Adam Tindle said in his note: "We are trimming our FCF expectations due to an expectation that management will address a combination of factors that could normalize FCF margin to the low/mid-30% range."
He added that updated 2026 targets also could move the stock.
"For now, we will err on the side of conservatism, but are sticking with the stock due to our view that cyber is in a platform cycle and Palo is in a unique position to gain share during this time," Tindle said.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
