Palo Alto Networks (PANW) is building bullishness on its long term prospects after an earnings beat and strong long term guidance from management Wednesday evening.
Palo Alto said adjusted earnings for the three months ending in July, the company's fiscal fourth quarter, came in at $1.47 per share, up 9.7% from the same period last year and 5 cents ahead of the Street consensus forecast. Group revenues also impressed, rising 22.4% to $805.8 million, again topping analysts' estimates of an $802.4 million tally.
Billings, a key figure for cybersecurity companies, also surprised to the upside as the company delivered $1.056 billion, about $200 million more than was expected by analysts.
"We will be building a huge capability to sell our next-generation security," CEO Nikesh Arora said during an investor event following the earnings release. "We feel very comfortable that we will be able to maintain the 20% billings growth rate over the next three years, as well as a 20% revenue growth rate over the next two years."
Shares of the Santa Clara-based cybersecurity leader gained strongly into positive territory after the presentation, bouncing violently from its immediate 10% drop as the print hit the Street in post-market as concerns on weaker than expected margins and free cash flow figures initially tanked the stock.
Lets put it this way: Palo Alto is a textbook example of why I have said don't trade after hours. This one just had a 38 point swing!!! $PANW— Jim Cramer (@jimcramer) September 4, 2019
"Overall the long-term outlook was better than expected as the company decided against a ratable model transition but remains focused on growing next-generation cloud-based offerings," RBC Capital Markets analyst Matthew Hedberg said. "FCF guidance was better than expectations, which reversed the stock and pushed shares higher following a post-market selloff."
Shares gained nearly 10% on Thursday's open, cementing the trend reversal.
To be sure, Hedberg noted that the guidance offered by Arora into fiscal year 2022 was above the buy side consensus and sets an extremely high bar for the company to clear, promoting some caution on the lofty targets.
Additionally, the company's aggressive acquisition strategy that was most recently added to with IoT startup Zingbox for $75 million, there remains the worry that the company is curbing earnings growth by overspending.
"While skeptics will push back on their ability to hit numbers, it will be up to the company to execute," Hedberg concluded. "Ultimately we think it's a bold plan, but we believe they have the right team, vision and product strategy to deliver."
Given the consensus "Buy" rating and $265.64 price target on the stock, there is a good deal of confidence among Hedberg's peers as well.
"The fourth quarter results were good, but the analyst event with management outlining the roadmap through 2022 from a product, go to market, and financial perspective is in our view exactly what the market needed," J.P. Morgan analyst Sterling Auty said. "PANW has been proactively building a very good cloud security business both organically and through acquisition, and the strategy ahead will drive the revenue mix further to subscription software over the next three years and in our opinion secures the growth for the future."
With the initial share reaction on Thursday, that long term view is also accelerating short term gains after a wild post-market trade.