Palo Alto Networks Executes On Growth Strategy
Palo Alto Networks (NYSE: PANW) has been executing a growth strategy successfully for the last several years. The fiscal Q4 results prove the strategy is working. Not only did the company see a robust increase in business over last year's Q4 period but the two-year comparisons are very strong as well. The pandemic may have accelerated business but business was strong even before then and it’s getting stronger. The shift to digital is secular and one embedded with a perpetual upgrade cycle and need for support that makes cyber-security specialist Palo Alto Networks well-positioned for the long-term. Now, with the company guiding the next year even higher, the stock is breaking out to new highs and poised to deliver another double-digit advance for shareholders.
Another Record-Setting Quarter For Palo Alto Networks
Palo Alto networks had a very strong quarter in which revenue growth was supported by strength in all operating segments. The company reported $1.22 billion in net revenue for a gain of 14% sequentially, 28.4% over last year, and 51% over the past two years. Last year's fourth quarter was notably a strong one with YoY growth reaching 18%. Bookings are up 34% to $1.9 billion while deferred revenue was up 32% to $5.0 billion and both suggesting revenue growth will continue in the coming quarters.
"Our strong Q4 performance was the culmination of executing on our strategy throughout the year, including product innovation, platform integration, business model transformation, and investments in our go-to-market organization," said Nikesh Arora, chairman and CEO of Palo Alto Networks. "In particular, we saw notable strength in large customer transactions with strategic commitments across our Strata, Prisma, and Cortex platforms."
Moving down the report, the company reported an increase in margin and free cash flow for the quarter which drove solid results on the bottom line. The caveat is that GAAP earnings of -$1.23 missed the consensus by $0.07 but that is offset by a strong result at the adjusted level. On an adjusted basis, the $1.60 reported by the company beat the consensus by $0.16 helping to lead the company to increase guidance for the coming year.
Looking forward, the company is expecting revenue strength to continue into the first quarter and then hold steady into the end of the year. For the first quarter, the company is expecting revenue in the range of $1.19 billion to $1.21 billion for a gain of 27% over last year. This compares to the consensus of $1.15 billion and the full-year guidance is even better. For the full year, the company is expecting $5.27 billion to $5.32 billion in net revenue for a gain of 25% YOY which compares to the consensus figure of only $5.02.
Palo Alto Networks Increases Its Share Repurchase Program
Palo Alto Networks does not pay a dividend but, along with the growth, the company is using its free cash flow to buy back shares. The company increased the buyback by $676 million which brings the total allotment available back up to $1 billion dollars. That's worth about 2.7% of the market cap and should help support price actions as we move forward. The analysts absolutely liked what they saw, the analysts upgrade/downgrade data from Pricetargets.com shows a stunning 24 analysts came out with positive commentary in the wake of the report.
The Technical Outlook: Palo Alto Networks Makes A Major Breakout
Palo Alto Networks made a breakout of stunning proportions in the wake of the Q4 earnings release. Price action is up more than 12% in premarket action putting it well above recent resistance and well into the new all-time territory. Looking at the chart of weekly price action, it appears that Palo Alto Networks has decisively broken out of a bullish triangle pattern and it's indicated higher. Our first target for resistance is near the $480 level which will be good for about 15% of upside. Longer-term, this stock could easily rise another $80 from there to hit the $560 level which would be good for a gain of 50%.
