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Palo Alto (PANW) to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

Palo Alto Networks Inc. PANW is slated to release fourth-quarter fiscal 2019 results on Sep 4.

Notably, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 12.35%.

In the last reported quarter, non-GAAP earnings of $1.31 per share not only jumped 26% year over year but also surpassed the Zacks Consensus Estimate of $1.25.

Moreover, during the fiscal third quarter, the company’s revenues of $726.6 million increased 28%, outpacing the consensus estimate of $704 million.

The impressive results were mainly driven by several deal wins and increasing adoption of the company’s next-generation security platforms. The company outperformed the network security market.

Palo Alto Networks, Inc. Price and EPS Surprise

Palo Alto Networks, Inc. Price and EPS Surprise
Palo Alto Networks, Inc. Price and EPS Surprise

Palo Alto Networks, Inc. price-eps-surprise | Palo Alto Networks, Inc. Quote

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What to Expect

For the fourth quarter of fiscal 2019, Palo Alto anticipates revenues of $795-$805 million, up 21-22% year over year. The Zacks Consensus Estimate is pegged at $803.1 million, indicating growth of 22.03% from the year-ago reported figure.

Non-GAAP earnings per share are estimated in the range of $1.41-$1.42. The consensus estimate is pegged at $1.42, indicating an increase of 10.94% from the year-ago reported figure.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Palo Alto is benefiting from a healthy demand environment. Growing adoption of the company’s cyber security solutions is expected to aid fiscal fourth-quarter top line. Further, it continues to witness significant momentum for deal wins, which is likely to drive revenues.

The company is also gaining from the successful acquisition of Redlock, which forms the basis of the Prisma public cloud. Notably, it crossed $100 million billings run rate in the last reported quarter. The continued flow of big value deals is expected to benefit fiscal fourth-quarter revenues.

Moreover, the buyout of Demisto in March this year is expected to boost profitability for Palo Alto. The company’s Cortex platform, which is based on Demisto’s capabilities, is already witnessing strong demand.

Further, its focus on network security, which is a top priority for companies and c-servs, is likely to remain a key driver. Continued traction in Palo Alto’s next-generation firewall offerings is expected to act as a tailwind for the upcoming results.

Palo Alto is also expected to benefit from its speedboat approach in cloud security, which has been adopted widely. In the last reported quarter, in order to enhance the application of this concept, the company consolidated its GPCS and public cloud speedboats into the Prisma speedboat. This is expected to drive speedboat adoption even further.

However, competition from players such as Fortinet FTNT in the security application market is a concern. Also, there are some established companies like Cisco CSCO and Juniper JNPR in adjacent markets, further intensifying rivalry in the space.

Moreover, expenses of approximately $457 million related to the acquisition of TwistLock and PureSec, both of which were acquired in the fiscal fourth quarter, are likely to be an overhang on the bottom line. Net expenses of $15 million related to the acquisitions of Demisto, Twistlock and PureSec are also expected to be a headwind.

Earnings are also likely to be adversely impacted by an expense of 2 cent per share as a result of the U.S. tariffs on Chinese goods.

Palo Alto currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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