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Palo Alto Slips: Not Clear They Can Dodge Cooling Firewall Market, Says Goldman

Shares of security technology vendor Palo Alto Networks (PANW) are down $3.98, or 2.6%, at $153.24, after Goldman Sachs’s Gabriela Borges this morning cut her rating on the shares to Neutral from Buy, and cut her price target to $168 from $171, after concluding the outlook for the industry is “more muted” this year than last, and the stock’s risk and reward are “balanced at current levels." Palo Alto’s firewall market won’t see big “refresh” buying until 2019 or 2020, writes Borges, and it’s not clear that Palo Alto’s “platform” can be successful outside of the firewall market. "Virtual firewall adoption for public cloud workloads has lagged,” writes Borges, "and we believe many customers to date are choosing not to use a firewall vendor (virtual or physical) to secure their cloud-hosted workloads." And for Palo Alto, which makes 5% of its “billings” off of subscription sales that are not tied to firewall sales, “there is limited visibility into whether Palo Alto can drive critical mass with unattached subscriptions, which we think will be key for the stock to rerate sustainably higher,” writes Borges.