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What's in Store for Palo Alto (PANW) This Earnings Season?

·5-min read

Palo Alto Networks PANW is slated to report third-quarter fiscal 2022 results on May 19.

Palo Alto projects year-over-year revenues of 25-27% to the $1.345-$1.365 billion range. The Zacks Consensus Estimate for the same is pegged at $1.36 billion, suggesting growth of 26.5% from the year-ago reported figure.

For the third quarter, PANW expects non-GAAP earnings in the range of $1.65-$1.68 per share. The consensus mark for the same stands at $1.67 per share, which indicates an increase of 21% from the year-ago quarter’s $1.67.

Palo Alto’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.2%.

Let’s see how things have shaped up before the announcement.

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

Factors to Consider

Palo Alto’s performance in the quarter may have gained from the strong momentum stemming from deal wins. This is likely to have boosted revenues. The strong demand for form factor hardware products, particularly the recently launched machine learning-powered models that ensure zero-trust network security for organizations, is expected to have contributed to the quarterly performance.

Palo Alto has been gaining from the Bridgecrew acquisition, which forms the crux of the Prisma public cloud, and Xpanse, which forms the basis of Cortex. Prisma and Cortex are likely to have continued performing well in the fiscal third quarter as well.

The growing and accelerated migration to the cloud due to social-distancing regulations is likely to have boosted the adoption of the aforementioned platforms. The company projects year-over-year billings growth between 24% and 25% ($1.59 billion-$1.61 billion) during the to-be-reported quarter.

Additionally, amid the pandemic-induced continued remote-working wave, the increased use of the cloud and remote networks resulted in escalating cyberattacks. This led to a rise in demand for cybersecurity solutions. PANW’s fiscal third-quarter performance is likely to have benefited from this demand surge.

Furthermore, Federal Risk and Authorization Management Program (FedRAMP) recognitions are boosting the adoption of Palo Alto’s products by government organizations. The company’s Prisma Access, Cortex XDR, Cortex Data Lake, Prisma Cloud and WildFire received FedRAMP recognitions.

This FedRAMP recognition reflects the trust that the U.S. public sector puts in Palo Alto’s IoT security solutions. This is anticipated to have encouraged the adoption of its products during the period in discussion.

However, higher sales incentives related to Next-Generation Security products are expected to have hurt the company’s bottom line. Additionally, forex headwinds and higher marketing and sales expenses might have weighed on the company’s profitability during the fiscal third quarter. Also, high acquisition-related expenses might have dragged down margins.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for PANW this season. The combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that is not the case here.

Palo Alto currently carries a Zacks Rank of 4 (Sell) and has an Earnings ESP of +0.77%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With the Favorable Combination

Per our model, Costco Wholesale COST, Star Bulk Carriers SBLK and Cisco Systems CSCO have the right combination of elements to post an earnings beat in their upcoming releases.

Costco carries a Zacks Rank #2 and has an Earnings ESP of +1.90%. The company is scheduled to report third-quarter fiscal 2022 results on May 26. Costco’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 13.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for COST’s third-quarter earnings is pegged at $3.04 per share, indicating a year-over-year increase of 10.6%. The consensus mark for revenues stands at $51.8 billion, suggesting a year-over-year increase of 14.3%.

Star Bulk Carriers will report first-quarter 2022 results on May 24. The company carries a Zacks Rank #2 and has an Earnings ESP of +1.77% at present. Star Bulk Carriers’ earnings beat the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being -2%.

The Zacks Consensus Estimate for quarterly earnings is pegged at $1.41 per share, suggesting a year-over-year improvement of 291.7%. SBLK’s quarterly revenues are estimated to increase 68.9% year over year to $338.6 million.

Cisco currently carries a Zacks Rank #2 and has an Earnings ESP of +0.84%. The company is slated to report its third-quarter fiscal 2022 results on May 18. Cisco’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 1.8%.

The Zacks Consensus Estimate for Cisco’s third-quarter earnings stands at 86 cents per share, implying a year-over-year increase of 3.6%. CSCO is estimated to report revenues of $13.3 billion, which suggests growth of 4.1% from the year-ago quarter.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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