Like many other tech names in recent months, shares of Palo Alto Networks (NYSE: PANW)
have come out of the coronavirus pandemic better than ever, closing Wednesday’s session at another all-time high. The $25 billion cybersecurity heavyweight
has seen a strong uptick in demand as the massive corporate shift to working-from-home continues and starts to look more normal than ever.
A 50% drop in shares in just four weeks through the middle of March wasn’t anything personal, pretty much equities were dumped en masse by a terrified Wall Street. However, investors were quick to recognize the tailwind that the pandemic was going to offer stocks like Palo Alto Networks and a 110% rally off the lows since then has more than undone the damage.
Their upside potential has been talked about since Q1, with Credit Suisse upgrading the stock in April on the back of much of the downside already being priced in. At the time shares were still down 25% from pre-COVID levels. In early May, Northland Securities issued an upgrade as well. They were big fans of the company’s "best-in-class on-premise and off-premise cybersecurity platform." Expectations were clearly high.
Then, towards the end of May, the company came through with a stellar fiscal Q3 earnings report that justified the ongoing recovery and gave investors every reason to think 2020 would be a banner year. A 20% jump in revenue year on year was more than enough to quieten any remaining bears while management was confident enough to raise their guidance for the full year.
With the company’s fiscal Q4 earnings report due in the next three weeks, investors are starting to position themselves accordingly. With the stock at all-time highs, solid numbers will be needed to justify the recent move and keep the momentum going. The folks over at BTIG believe the company can do this.
On Wednesday, they upgraded Palo Alto Networks stock from a Neutral to a Buy rating and raised their price target to $313. This suggests there’s still room to the upside of about 20% from last night’s close. BTIG cited solid demand in recent months, fuelling a report that’s going to surprise conservative Wall Street estimates, and investors love those kinds of surprises.
Room To Run
Shares jumped nearly 4% on the news as the bull’s argument strengthened. In the past few weeks we’ve seen earnings from cybersecurity peers like FireEye (NASDAQ: FEYE) smash expectations. As industry demand continues to outpace Wall Street’s expectations, it might be a while yet before they’re fully aligned. In the meantime that means upside surprises for investors to enjoy.
The work from home trend certainly isn’t close to stalling yet, with leading tech companies like Uber (NYSE: UBER) and Google (NASDAQ: GOOGL) only this week updating their plans to remain in a work-from-home state until at least July 2021. So even though Palo Alto Networks’ shares are at all-time highs after a blistering run and have a major catalyst on the horizon, it’s hard to argue that they’re not meant to be up here.
Last week we saw Apple’s (NASDAQ: AAPL) earnings leave Wall Street speechless, even after their market cap more than doubled in four months. Tech analysts are clearly struggling to accurately account for the upside the pandemic is bringing to the industry while at the same time ravaging the blue-collar economy.
CEO Nikesh Arora summed it up well in May’s report when he said the company is well-positioned to capitalize on the "remote working models, shift to the cloud, and focus on AI/ML and automation to drive effective cybersecurity outcomes." Investors have been buying into this all summer and look set to continue doing so for the rest of the year.
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