Palo Alto Networks and Ciena have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 28, 2023 – Zacks Equity Research shares Palo Alto Networks PANW as the Bull of the Day and Ciena CIEN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA Corporation NVDA, Salesforce CRM and Adobe ADBE.
Here is a synopsis of all five stocks:
Bull of the Day:
Palo Alto Networks is a Zacks Rank #1 (Strong Buy) that is a cybersecurity company that offers network security solutions to enterprises, service providers and government entities worldwide.
The stock has been a top performer this year, up 65% so far in 2023. After selling off from recent highs, the bulls got another bullish catalyst with a big earnings surprise to the upside.
While there has been plenty of volatility recently, the trend is still higher. The question for investors is if this stock can get back to those recent highs and finish the year out strong.
More about Palo Alto
The company incorporated in 2005 and is headquartered in Santa Clara, California. It employs over 12,000 and has a market cap of $70 billion.
Palo Alto offers firewall appliances and software, subscription services for cyber threats, cloud security, professional services and more. Palo Alto sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries.
The stock has a Zacks Style Score of "A" in Momentum, "B" in Growth, but "F" in Value. The Forward PE is 43, which is a concern for value investors.
Q4 Earnings
Palo reported earnings on August 18th and once again beat expectations. The 12% beat was not as good as the last three quarters, but was still enough to take the stock 15% higher. The company is used to beating earnings expectations, with not one single miss since going public over a decade ago.
Looking at the quarter, Palo reported Q4 at $1.44 v the $1.28 expected. Billings came in at $3.2B, up 18% y/y, while remaining performance obligation was up 30% y/y.
The company guided Q1 at a range of $1.15-1.17 v the $1.11 expected. They also guided FY24 at $5.27-5.40 v the $4.95 expected.
Management cited strong execution and the changing environment that is driving customers towards platformization.Additionally, their AI based security automation platform XSIAM is being met with positive reception.
Estimates Rising
The strong quarter has analysts raising estimates across the board.
Over the last 7 days since earnings were released, the current quarters estimates have gone from $1.10 to $1.15, or 5% higher. Expectations for next quarter have been lifted as well, with estimates also going up by 5%.
Looking further out, estimates continue to trend higher. For the current year, we have seen estimates go from $4.95 to $5.30 over the last month, or 7%. For next year, estimates spiked to $6.36 from $5.85, or 9%.
Since Palo Alto reported earnings, Wall Street has been lifting price targets for the stock.
JPMorgan has an Overweight on the stock and raised their price target from $251 to $268.
Oppenheimer reiterated its Outperform and maintained their $290 target.
Morgan Stanley is one of the most bullish firms, reiterating their Overweight and $304 target, up from the previous target of $302.
Analysts cited positive long-term guidance as a catalyst for the bullishness. This in the face of increasing macro headwinds that recently made investors sell the name.
The Technical Take
While the stock saw some aggressive selling into the earnings print, it came roaring right back to come just 5% of all-time highs.
Looking at moving averages, PANW looked like it might test the 200-day MA last week at $192. However, the earnings gap higher took that opportunity away and the stock shot right back above the 50-day MA at $238.
We have seen some selling since the move higher, with the 21-day MA at $226 offering some support.
If recent market weakness persists, investors can eye that 200-day again under $200. However, the fundamentals might be too strong and if the 50-day is taken back by the bulls, we should see those all-time highs.
The 8/18 low did test the halfway back mark, drawn from January lows to July highs. If that Fib setup holds up, investors can target the $288 level into year end.
In Summary
Palo Alto is the best of breed in cybersecurity and continues to post big earnings numbers. While the stock might see some struggles with recent market weakness, the pullbacks should be looked at as long-term opportunities.
Bear of the Day:
Ciena is a Zacks Rank #5 (Strong Sell) that is a leading provider of optical networking equipment, software, and services.
After trading sideways the first half of the year, the stock fell out of bed after its Q2 earnings report. Since then, the stock has struggled to go anywhere, hovering around the $40 level.
Investors will likely get a move over the next week as the company looks to report earnings on 8/31. Interested parties might want to take caution ahead of the report as estimates have been headed lower over the last few months.
About the Company
Ciena is headquartered in Hanover, Maryland.The company was founded in 1992 and employs about 8,000.
The company classifies its reporting segments into — Networking Platforms (80.8% of total revenues in second-quarter fiscal 2023); Platform Software and Services (6.1%); Blue Planet Automation Software and Services (1.8%); and Global Services (11.3%).
CIEN is valued at $6 billion and has a Forward PE of 16. The stock holds Zacks Style Scores of "B" in Growth and Momentum, but "F" in Value. The stock pays no dividend.
Q2 Earnings
In early June, Ciena reported a 23% EPS beat and saw a slight beat on revenues. EBITDA was up 39.7% y/y and management commented that the supply chain has improved.
However, the company cut its FY23 revenue to +18-22% y/y v the +20-22% prior. They additionally cut Q3 revenue to $1.00-1.08B v the $1.11B expected.
The guide lower disappointed investors as valuation comes into question. The stock fell about 14% from the prior session and analysts cut estimates across the board.
Estimates
When looking at the last 90 days, the trend lower in earnings estimates shows why the stock is struggling.
For the current quarter, analysts have dropped their numbers from $0.72 to $0.53, or 26%.
For the next quarter, analysts lowered estimates from $0.85 to $0.66, or 22%.
Longer term, numbers are falling as well. Next year's estimates have gone from $3.61 to $3.20 or 11%.
A lot of analysts maintained their Buy rating for the stock, but lowered price targets. UBS went from $54 to $48, while JPMorgan went from $65 to $50.
Technical Take
When you zoom out, the chart does not look good. The $40 level was where the stock resided before the COVID crash. While it did spike to $78 in 2021, there has been no appreciation since early 2020.
When you zoom in and look at the moving averages, we see a 200-day MA way up at $46.50. The 50-day, which is at $42, has proven strong resistance since the last earnings report.
The October lows are $38.33 and if earnings disappoint again, investors will be risking a sharp move below that area.
In Summary
Ciena is bleeding lower ahead of the earnings report next week. With another disappointing quarter possible, investors should take caution. If the $38 level were to break, we might see further pressure on the name as big money gives up.
Additional content:
NVIDIA Datacenter Key to Q2 Success
NVIDIA Corporation reported overwhelming second-quarter fiscal 2024 results, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate and marked a significant year-over-year improvement. The company's latest quarterly performance reflected record revenues across its datacenter end market, which mainly benefited from growing investments in generative AI.
The company's second-quarter performance reflected the continued strength of its Datacenter business on the growing adoption of cloud-based solutions amid the growing hybrid working trend. The strong demand for its chips from large cloud service and consumer internet companies also aided the segment's top-line growth in the second quarter.
However, the Datacenter end-market business mostly benefited from the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures. In the second quarter of fiscal 2024, the company's revenues from the Datacenter business jumped 171% year over year and 141% sequentially, mainly due to growing investments in generative AI.
Though AI has been around for years, the meteoric rise of OpenAI's ChatGPT has captivated the world's attention on the power of generative AI to augment human capability, suggesting that the AI boom may just get started.
The adoption of ChatGPT among enterprises has already proven generative AI technology's usefulness across multiple industries, including marketing, advertising, customer service, education, content creation, healthcare, automotive, energy & utilities and video game development.
However, generative AI requires vast knowledge to create content and needs huge computational power. As a result, enterprises looking to create generative AI-based applications will be required to upgrade their existing network infrastructure.
NVIDIA's next-generation chips with high computing power are being considered as the top choice for enterprises. NVIDIA's GPUs are already being applied in AI models, which is expanding its footprint in untapped markets like automotive, healthcare and manufacturing.
The generative AI revolution is likely to create huge demand for its next-generation high computing powerful chips. NVIDIA expects its third-quarter fiscal 2024 revenues to reach $16 billion (+/- 2%) from $5.93 billion in the year-ago quarter, largely driven by surging AI investments across the datacenter end market.
The proven success of generative AI has sparked competition among software makers, including Salesforce and Adobe, to integrate the technology into their products.
Salesforce forayed into the generative AI space with the launch of Einstein GPT in March 2023. In June 2023, the company elevated the set of its generative AI tools with the launch of the AI Cloud service. With this, CRM claims to offer one-stop AI-powered solutions for enterprises looking to enhance productivity.
Salesforce's AI Cloud is a suite of services that delivers enterprise-ready real-time, open and secure generative experiences across all applications and workflows. The suite will power new capabilities across Salesforce's products, including Einstein service, data analysis software Tableau and workplace-messaging app, Slack.
The digital media solutions provider, Adobe, aggressively expanded its footprint in the generative AI space through partnerships and new solutions. Adobe has unveiled a family of generative AI models, Firefly, focused on the generation of texts and images. Per the company, Firefly will offer more precision, speed, power and ease in content creation. It will let users of various experience levels create high-quality images and stunning text effects.
At present, NVIDIA sports a Zacks Rank #1 (Strong Buy), while Adobe and Salesforce each carry a Zacks Rank #2 (Buy). Cisco carries a Zacks Rank #3 (Hold). Shares of NVDA, ADBE, CRM and CSCO have surged 220.7%, 51.9%, 54.9% and 15.9%, respectively, YTD. You can see the complete list of today's Zacks #1 Rank stocks here.
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Salesforce Inc. (CRM) : Free Stock Analysis Report
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Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report
