Palo Alto Networks (PANW) Plunges on Revised Guidance

Shares of network security systems maker Palo Alto Networks (PANW) plunged last week, after the company issued a revenue forecast that missed Wall Street expectations. The Santa Barbara, California-based company stated that its fourth quarter revenue would come in between $106 million to $110 million, missing the consensus estimate of $113.7 million. This warning followed mixed third quarter earnings that disappointed analysts.

For its third quarter, Palo Alto reported a net loss of $0.10 per share, or $7.3 million, on revenue of $101.3 million - a 54% jump from the prior year quarter. However, Wall Street expected earnings of $0.05 per share on revenue of $103.46 million. Daily Chart
This is a major reversal for Palo Alto Networks, which has beat estimates ever since going public last July. The company blamed challenging economic conditions, government budget cuts and weakness in Europe for its top line declines. Europe accounts for 20%-25% of the company's revenue, while the U.S. government comprises roughly 10%. Yet Palo Alto Networks' warning shouldn't come as much of a surprise to investors who have been following the networking industry. Over the past two months, Aruba Networks (ARUN), Juniper (JNPR) and F5 Networks (FFIV) all missed Wall Street estimates for the same reasons. The only standout company was market leader Cisco (CSCO), which crushed its competitors by lowering its prices on bundled networking packages. Smaller competitors were unable to compete with Cisco's lower prices and tumbled as a result. However, Palo Alto Networks, co-founded in 2005 by former Check Point Software Technologies executive Nir Zuk, provides a niche technology of network security, which is a higher-margin business than traditional routers, switches or application delivery controllers. Palo Alto has been growing faster than its rivals, capitalizing on the growing need for fast-growing businesses to protect themselves from newer, more sophisticated hacking attacks. B. Riley & Co. analyst Daniel Cummins, who covers Palo Alto Networks, acknowledged the market's disappointment in the company. "To come in at the low end of the guidance range is kind of a recipe for a one-day disaster for the stock," he stated. However, Cummins remained bullish on the company, stating that he expects that the drop "won't be repeated." Palo Alto currently has over 12,500 customers using its platform. Shares of Palo Alto Networks currently trade with a forward P/E of 118.3 with a 5-year PEG ratio of 6.6, making it a fundamentally unattractive stock to own at current prices. The stock is currently down 9% since its market debut last July. It does not currently pay a dividend. Other News About PANW Palo Alto Networks Falls After Missing Sales Forecast Palo Alto takes one on the chin after disappointing Wall Street. Palo Alto Networks Q3 Sales, Outlook Miss Targets Is this a one-time fluke, or is the company in serious trouble? Other Stocks in the News The Whiners and the Winners of the Credit Card Wars Should retailers and credit card companies call a truce? How Should Investors Play the News Corp. Split? 21st Century Fox becomes a new company. Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jun 3, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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