Palo Alto Networks: Room to Run After 3Q Earnings?
Palo Alto Networks (PANW) notched a fresh all-time high Monday of 302.95 as traders gear up for earnings in Tuesday’s post-market session.
In just 68 trading days, the stock is up 115% from the 52-week low of 139.57 on Feb. 24. Analysts expect just 1.25% growth in third quarter earnings per share, to $0.81 from $0.80 in the same period a year ago. The consensus, however, does call for robust growth in revenue of $2.94B vs. $2.29B last year (+28.58%). Although Palo Alto Networks, with a market capitalization of roughly $243B, focuses on cloud cybersecurity software, its chart is quite unlike many other names in the beleaguered software sector. Its recent activity is more like the explosive upswings seen in advanced computer chip and AI infrastructure names such as Micron Technology (MU), Dell Technologies (DELL), and HP Enterprise (HPE).
For Palo Alto Networks, with a sharp rally of about 63% since a gap up on May 6, some bullish analysts see limited upside. Baird Monday raised its price target to $300 from $265 and kept an outperform rating, while JP Morgan revised its target to $300 from $200 and maintained an overweight rating. Firms including Wedbush, Benchmark, BTIG, and Evercore ISI last week raised their targets.
Corporate cybersecurity giant Zscaler (ZS), with a market cap of $25B, may be a cautionary tale. Its stock tumbled 30% when it reported decent results in May, coupled with some caution on future sales and the pace of customer uptake of a new solution. (See 3 Answers from Zscaler on Earnings as Stock Sinks)
“We are in a moment of time here in cybersecurity," Zscaler CFO Kevin Rubin told Marley Kayden Monday, "... [with] Mythos and Mythos-like models that are going to redefine what cybersecurity looks like going forward and how companies need to respond to those threats ..."
The double-edged sword that is AI poses many opportunities for the software sector, but also major disruptions. The ease and lightning-fast speed with which AI can make basic code, custom images, or many other digital creations has translated into major losses for companies such as Intuit (INTU), Workday (WDAY), and Adobe (ADBE). Conversely, cybersecurity companies like Palo Alto and CrowdStrike (CRWD), which also reports earnings after the close Wednesday) now can not only reap the advantages of AI in terms of streamlined operations and ease in new product creation including the massive potential growth in combatting endless and unprecedented new threats posed by AI.
Palo Alto also has made major acquisition efforts during the past year, snapping up five smaller companies to bolster their cybersecurity platform. The biggest purchase by far was for CyberArk, coming in at $25B, which helped shore up the identity security aspect of their platforms and round out their offerings as a comprehensive security platform.
Palo Alto’s chart made an upside breakout from an upward channel-type shape that began with the previously mentioned May 6 gap. Momentum also remains strong with the Relative Strength Index still above the 80 threshold, which is typically viewed as an extreme reading of bullishness in trending markets. This is also atypical for momentum in general, which often slows heading into event-risk situations such as earnings. Areas of potential support include an old peak around 260 from May 22 and recent lows near 244 from May 27 during this rapid ascent. The latter area also roughly aligns with a volume node that formed according to a three-month Volume Profile study, which marks price zones with heavy trading activity.
This Friday’s weekly Jun. 5 options expiration shows a potential move of +/-33.7, which translates to about 11.4%. The lower edge of the range is around 261, which is roughly in line with the previous May 22 peak and suggests the market could view this as a supportive area in the near term. Meanwhile, the Jul. 17 monthly expiration shows a potential range of about +/-55.9 (19%), which projects possible support just below the May 27 lows.
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