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Palo Alto (PANW) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

Palo Alto Networks Inc. PANW is slated to release third-quarter fiscal 2019 results on May 29.

Notably, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 11.93%.

In the last reported quarter, its earnings and revenues recorded year-over-year improvement, mainly driven by several deal wins and increasing adoption of the company’s next-generation security platforms.

What to Expect in Q3?

For the third quarter of fiscal 2019, Palo Alto anticipates revenues of $697-$707 million, up 23-25% year over year. The Zacks Consensus Estimate is pegged at $703.4 million, indicating growth of 24.04% from the year-ago reported figure.

Non-GAAP earnings per share are estimated in the range of $1.23-$1.25, which includes expenses related to the impending acquisition of Demisto. The figure also includes an expense of a penny per share as a result of the U.S. tariffs on Chinese goods.

The consensus estimate is pegged at $1.25, indicating an increase of 26.26%.

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 the top line in the to-be-reported quarter. Further, it continues to witness significant momentum for deal wins, which is expected to drive revenues.

The company continues to invest in in Advanced Endpoint Protection, which is expected to be reflected in the upcoming results. The company boasts approximately 4,000 Traps customers — a large chunk of them managing Traps from the cloud.

Moreover, in the last reported quarter, Palo Alto launched several products in the market, like the PA-7000 series and the K2 series. These are expected to witness some traction in the to-be-reported quarter due to the stringent security needs that come with the growing adoption of IoT and the advent of 5G in the service provider market.

Notably, Palo Alto’s first speedboat in cloud security, which was launched in the first quarter of fiscal 2019, witnessed significant traction, reaching approximately 8000 adoptions by the end of the fiscal second quarter. This offering is expected to continue its momentum and boost the company’s top line.

Palo Alto is currently focusing on selling more subscription-based services, which is a high gross-margin business (approximately 80%), compared with the hardware-centric model. This unique business model is helping it to generate stable revenues while expanding margins.

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 the adjacent markets, further intensifying rivalry in the space.

Moreover, M&A expense of approximately $5 million related to the acquisition of Demisto is likely to be an overhang on the bottom line.

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.

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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