Multiple recent cybersecurity hacks have again demonstrated the importance of strong cybersecurity for both the private sector and all levels of government, even generating a presidential executive order, observes Joseph Bonner, an analyst with Argus Research.
Palo Alto Networks (PANW) provides integrated internet security solutions for enterprise customers. The company’s solutions are based on its “next-generation” firewall and security platform, and also include software applications for various enterprise security needs.
Enterprises trying to protect cyber assets have often settled on a “buy-best-of-breed” approach, which has led to complex and perhaps dissonant cybersecurity solutions, requiring extensive monitoring by security operations personnel.
While Palo Alto’s solutions are often highly competitive if not best-of-breed, the company is focused on providing an integrated, end-to-end security platform from the basic firewall out to cloud security and to all endpoints.
CEO Nikesh Arora has set out his vision for Palo Alto, focusing on making enterprise network security simpler and more effective. Palo Alto sees opportunities in helping customers protect endpoints in the new distributed work-from-home environment. Management will continue to invest in its rapidly growing next-generation security solutions and in its sales force to drive adoption.
The company has enhanced its strategic position though both a robust R&D cycle and a series of tuck-in acquisitions, and has created an enterprise cybersecurity platform that addresses cloud-protected and distributed security, automation, artificial intelligence, and IoT.
Palo Alto is working with all four of the largest enterprise cloud service providers, Amazon Web Services, Microsoft Azure, Alibaba Cloud, and Google Cloud Platform, to provide client data security in a shared security model.
As more IT workloads shift to the cloud over time, cloud security is likely to remain a critical growth vector. We view Palo Alto as a leader in a very competitive and fragmented enterprise network security industry, and believe that management has recognized and taken advantage of emerging industry trends.
We are raising our FY22 non-GAAP EPS estimate to $7.26 from $7.24 and our FY23 forecast to $8.94 from $8.91. Our FY22 estimate is just above management’s guidance range of $7.15-$7.25. We note that PANW often exceeds its guidance and consensus. Our estimates imply average EPS growth of 21% over the next two years, above our long-term earnings growth rate forecast of 19%.
The forward enterprise value/EBITDA multiple of 39.6 is 26% above the peer average, above the average discount of 12% over the past two years. We are maintaining our BUY rating on PANW and raising our target price to $620 from $530.