Palo Alto Networks PANW is a stock that investors should consider adding to their portfolio to shrug off the prevailing highly volatile market environment and make some gains from its upside potential.
Since the beginning of 2022, Wall Street has been witnessing high volatility due to several ongoing economic issues, which include aggressive interest rate hikes by the Federal Reserve, the Russia-Ukraine war-led energy crisis, and persistent inflation since the last year. On top of tightening Fed policies, the outbreak of new coronavirus variants remains a key concern among investors.
Such geopolitical uncertainties are likely to continue weighing on investors' sentiments, which might lead to higher volatility in the U.S. equity market. Year to date (YTD), the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 9.4%, 20.9% and 13.4%, respectively.
In such a scenario, top-ranked stocks like Palo Alto can boost one's portfolio. Though the broader market sell-off has led to a fall in the company's share price YTD, the decline has been significantly lower than the major stock indexes as well as other players in the IT security space. Shares of PANW have decreased 2.3% YTD compared with the Zacks Security industry's decline of 14.8%.
Palo Alto Networks, Inc. Price and Consensus
Palo Alto Networks, Inc. price-consensus-chart | Palo Alto Networks, Inc. Quote
Why is PANW an Attractive Pick?
Trading Way Below 52-Week High: Palo Alto stock currently trades lower than its 52-week high, which reflects its potential to go upward. The stock’s closing price of $569.51 on Aug 23 is 11% lower than the 52-week high of $640.90 attained on Apr 20, 2022.
Attractive Valuation: Palo Alto currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-sales multiple of 8.31X compared with its five-year average of 12.33X.
Solid Rank & Growth Score: Palo Alto currently has a Zacks Rank #2 (Buy) and a Growth Score of A. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities to investors. Thus, the company appears to be a compelling investment proposition at the moment.
Positive Earnings Surprise History: PANW has an impressive earnings surprise history. The company outpaced estimates in each of the trailing four quarters, the average surprise being 5.5%.
Strong Earnings Growth Potential: The Zacks Consensus Estimate of $9.26 per share for fiscal 2023 earnings suggests year-over-year growth of approximately 7.6%. The consensus mark for fiscal 2024 earnings stands at $11.43 per share, indicating a year-over-year surge of 9.3%. Moreover, the long-term expected earnings growth rate for the stock is pegged at 31.5%, better than the industry’s 14.2%.
Robust Fundamental Growth Drivers: Palo Alto is benefiting from the increased adoption of its next-generation security platforms, driven by a rise in the remote working policy among top-notch companies. The cyber security firm continues to win back-to-back deals for offering unique cyber safety solutions, which ensure the blocking of attacks or malicious content. It is currently focusing on selling more subscription-based services which, in turn, is helping it to generate stable revenues while expanding margins.
Palo Alto's subscription-based services like AutoFocus, Aperture, Traps, WildFire and Virtual are not only witnessing solid growth but also bolstering the customer base. We believe that the subscription-based business model will continue to improve the company’s top and bottom lines.
This year, in May, the cybersecurity firm entered an agreement with Oracle Corporation's ORCL Oracle Cloud Infrastructure Network Firewall to integrate its VM-Series Next-Generation Firewall solution for blocking threats and reducing risk breaches.
The Redwood City-based software provider, Oracle, currently carries a Zacks Rank #2. Shares of ORCL decreased 12.4% in the year to date.
Growing traction in Palo Alto's Prisma and Cortex offerings continues to act as a tailwind. The company made strategic acquisitions to accelerate growth through the expansion of its product portfolio and global footprint. Its 2021 Bridgecrew buyout enabled Prisma Cloud to become the first cloud security platform to deliver security across the full application lifecycle. Likewise, PANW's The Crypsis Group buyout in 2020 strengthened its Cortex platform with expert services for incident response and proactive assurance. Such acquisitions are likely to boost the company’s revenue growth opportunities.
Other Stocks to Consider
Some other top-ranked stocks from the broader Computer and Technology sector are Clearfield CLFD and Silicon Laboratories SLAB, both flaunting a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Clearfield's fourth-quarter fiscal 2022 earnings has been revised 10 cents north to 80 cents per share over the past 30 days. For fiscal 2022, earnings estimates have moved 36 cents north to $3.13 per share in the past 30 days.
Clearfield’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 33.9%. Shares of CLFD have increased 48.4% YTD.
The Zacks Consensus Estimate for Silicon Laboratories’ third-quarter 2022 earnings has increased 22.9% to $1.02 per share over the past 30 days. For 2022, earnings estimates have moved 14.2% up to $4.18 per share in the past 30 days.
Silicon Laboratories’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 63.6%. Shares of SLAB have decreased 35.2% YTD.
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