Palo Alto Networks: A Buy for 2016

Palo Alto Networks (PANW) announced third quarter ended September 30, 2015 total revenue of $297.2 million, up 55 percent year-over-year from $192.3 million in third quarter of 2014. Going forward, the company has also provided total revenue outlook for second quarter of fiscal year 2016 and estimates it to be in $314 to $318 million range, depicting year-over-year expansion in the range of 44 percent and 46 percent.

Strong growth

Palo Alto declared first quarter of fiscal year 2016 non-GAAP net income of $31.6 million, or $0.35 per diluted share as against non-GAAP net income of $12.8 million, or $0.15 per diluted share during the same period last year.
Moving ahead, the company has provided bottom line outlook for second quarter of fiscal year 2016 and estimates diluted non-GAAP earnings in $0.38 to $0.39 per share range leveraging about 91 to 92 million shares.

The network security provider reported continued year-over-year improvement in both its top and bottom lines primarily due to the company’s significant expansion in market share with key growth rates notably outpacing the market and allowed by continued success of Palo’s locally developed and impressively automated enterprise security platform, delivering prevention capacities at each step during the entire cyber-attack lifecycle.

Palo Alto and its competitors like Fortinet Inc. (FTNT.O) and FireEye Inc. (FEYE.O) offer cloud-based superior threat fortification and malware detection products, which have allowed them to capture market share from conventional firewall suppliers.

The network security provider has been signing attractive agreements with some key customers and has substituted Checkpoint Systems Inc (CKP.N) and Cisco Systems Inc (CSCO.O) as the favored security provider for certain companies during the fourth quarter.

A growing market and products

According to market research firm MarketsandMarkets, the international cyber security market is forecasted to expand from $106.32 billion during 2015 to $170.21 billion by 2020.

The advanced security products development capability of Palo Alto is further fortified by strategic security contracts being entered with other major players in this segment and well-timed to capture significant prospective growth opportunities in this domain.

Palo Alto, the advanced security company and Mirantis®, the core OpenStack® company, recently declared a joint venture and accessibility of the former’s advanced virtual network function (VNF) under Mirantis OpenStack which is a production-grade OpenStack distribution. The combined platform guards applications from cyberthreats and offers benefits of the quickness, cost control, and improvement of the OpenStack cloud network.

The business expansion for Palo Alto is increasingly evident from superior acceptance of the company’s hybrid-SaaS model which has also delivered 71 percent-year-over-year top line growth to approximately $804.5 million and leading to operating cash flows and free cash flows of $146.7 million and $127.2 million respectively.

The consolidated company is increasingly delivering innovative networking security products which are believed to deliver significant top line growth and longer term profitability.

In addition, Palo Alto has strategically introduced innovative security-as-a-service product called Aperture that strengthens security for authorized SaaS applications, like Salesforce, Box, Google Drive and Dropbox. The security services provider declared commercial accessibility of its AutoFocus threat intelligence product.

Palo Alto has signed notable international managed security services contracts with Trustwave and Telefonica, extending the former’s market presence and delivering continued longer-term company’s profitability.

The advanced security products of Palo Alto developed in conjunction with other major security providers is forecasted to notably extend the company’s global market presence, delivering impressive top line growth.

Conclusion

Overall, the investors are advised to buy Palo Alto Networks, Inc. considering the company’s significant growth prospects being supported by a robust balance sheet with notable total cash of $761.30 million against weaker total debt position of $492.30 million only, encouraging the company to make future growth investments.
Published on Jan 8, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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