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Palo Alto: A Buy Opportunity Before Earnings

05/26/2016 9:12 am EST


Michael Berger

President & Founder,

The need for data security solutions continues to increase but data security stocks have underperformed during 2016 says Michael Berger, Associate Editor of, who highlights his favorite stock in this sector, Palo Alto Networks before it reports earnings after the market closes today.

Data security leader Palo Alto Networks, Inc. (PANW) will report its third quarter financial results after the market closes today.

Although the market was up yesterday, PANW traded lower and we think this has created a great opportunity for traders as we expect the company to report another beat and raise quarter.

According to analysts surveyed by Thomson Reuters, Palo Alto is expected to report earnings of $0.42 per share on $339.5 million in revenue. During the same period last year, the company reported earnings of $0.23 per share on $234.2 million in revenue.

An Industry Leader 

Palo Alto remains our top pick in the data security sector and the stock looks very attractive after a 17% decline this year.

Palo Alto specializes in multi-function next-generation firewall appliances, which can replace several point solutions with one stand-alone appliance. The company pioneered application control technology which allows firewalls to place selective usage policies for an application rather than block it entirely.

When you look at 2016 estimates for data security companies, Palo Alto has the highest revenue growth and cash flow margin.

Seeing the First Refresh of its Product Base

Palo Alto reported better-than-expected earnings during the last two quarters and we expect the company to benefit from the fact that weak January sector sales are now behind it.

Palo Alto continues to drive a replacement of legacy firewalls and its starting to see the first refresh of its own product base, while aggressively expanding its product portfolio in advanced threat (Wildfire), endpoint (Traps), cloud security (Aperture), software defined networking (VM series/NSX), and security analytics (Autofocus).

We believe that the data security industry is in the middle of a multi-year security spending cycle that should disproportionately benefit PANW as the dominant security platform vendor.

Continues to Take Market Share Around the World

Palo Alto continues to increase its geographic presence and take market share around the world. We expect to see this trend continue as hacking remains a serious threat to companies across the globe. These cyber-attacks have led to an increase in demand for data security and we expect such demand to continue to increase for years to come.

We view Palo Alto as a great trading opportunity as we expect the company to beat expectations as demand for its next generation firewall appliances combined with sales of adjacent products like Wildfire, continues to grow.

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