Palo Alto Networks’ long-term outlook has received a boost after Bank of America upgraded the cybersecurity company’s stock from neutral to buy.
The bank maintained its $215 per share price target, suggesting more than 22% upside from Monday’s close of $176.17.
The call sent shares higher, with the stock gaining around 6% in pre-market trading on Tuesday.
Analyst Tal Liani pointed to the company’s ability to generate stronger free cash flow going forward, highlighting Palo Alto’s “technological and product leadership” as a key advantage in maintaining its position as a leader in the cybersecurity sector.
According to Liani, the company’s platform strategy appears to be gaining traction, with software driving an increasing share of growth.
Software now accounts for 56% of product revenues, compared with 44% a year ago, supported by 1,400 platform deals.
Quarterly results beat expectations
The company reported stronger-than-expected results for its fiscal fourth quarter, exceeding analyst estimates on both earnings and revenue.
Adjusted earnings came in at 95 cents per share, ahead of the 88 cents expected, while revenue rose to $2.54 billion versus the $2.5 billion forecast.
Revenue climbed 16% from the $2.2 billion recorded in the same quarter last year.
Net income fell year-on-year to $254 million, or 36 cents per share, compared with $358 million, or 51 cents per share, in the prior-year period.
For the current fiscal first quarter, Palo Alto expects adjusted earnings per share between 88 and 90 cents, surpassing StreetAccount’s estimate of 85 cents.
Full-year revenue guidance was set at between $10.48 billion and $10.53 billion, with adjusted earnings projected at $3.75 to $3.85 per share.
Both outlooks exceeded Wall Street expectations.
The company also reported that remaining purchase obligations — a measure of backlog — are expected to come in between $15.4 billion and $15.5 billion, ahead of analyst estimates of $15.07 billion.
Major acquisition and leadership transition
Alongside financial results, Palo Alto confirmed it will acquire Israeli identity security provider CyberArk in a $25 billion deal, its largest transaction to date.
The move underscores Chief Executive Nikesh Arora’s acquisitive strategy since taking over in 2018, with this purchase marking the company’s most ambitious step in a series of 24 acquisitions.
Commenting on the deal, Arora told CNBC: “We look for great products, a team that can execute in the product, and we let them run it. This is going to be a different challenge, but we’ve done well 24 times, so I’m pretty confident that our team can handle this.”
The quarter also brought a significant leadership change, with founder and Chief Technology Officer Nir Zuk retiring from his role.
Lee Klarich, Palo Alto’s long-time product chief, will succeed Zuk as CTO and join the company’s board of directors.
Despite these positive developments, Palo Alto shares have slipped by more than 3% so far in 2025, reflecting investor caution after recent acquisition announcements.
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