Palo Alto Networks (PANW) provides integrated internet security solutions; its unique value proposition rests on its enterprise-grade integrated security platform, explains Joseph Bonner, CFA, with Argus Research, a leading independent Wall Street Research firm.
This platform features a next-generation firewall with attached and unattached add-on subscription services that provide highly automated prevention of known and unknown cyber threats.
We see Palo Alto’s ability to protect itself and its own customers against the “SolarStorm” attack through its advanced cyber-security platform as a powerful differentiator and rapid response to the crisis as responsible management.
“SolarStorm” should, one more time, put advanced cyber-security protection at the top of the CIO priority list for both enterprises and government entities.
Palo Alto sees opportunities in helping customers secure and protect endpoints in the new distributed work-from-home environment. Management will continue to invest in its rapidly growing next-generation security solutions and its sales force to drive adoption.
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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.
Despite pandemic-related uncertainty, Palo Alto has raised its FY21 guidance as clients continue to invest in IT security. Our FY21 non-GAAP EPS estimate is $5.83 and our FY22 forecast is $6.86. Our FY21 estimate is above management’s upwardly revised guidance range of $5.70-$5.80 and the consensus of $5.75.
We note that PANW often exceeds its guidance and consensus. Our estimates imply average EPS growth of 19% over the next two years, equal to our long-term earnings growth rate forecast.
The forward enterprise value/EBITDA multiple of 32 is 55% above the peer average, above the average premium of 28% over the past two years. We are maintaining our "buy" rating on PANW and raising our target price to $410.
