Palo Alto Networks, Inc. (NASDAQ:PANW) Serves Up Entry After Beating The Consensus

Traders Are Taking Profits In Palo Alto Networks

The expectation that Palo Alto Networks, Inc. (NASDAQ:PANW) would beat the consensus were very high going into the fiscal Q4 earnings release. Not one but several analysts came out in the days before the release saying something to that very effect. Analyst Daniel Ives of Wedbush said the company’s “discernible uptick in demand” should lead to a strong showing after the bell. Which is why the stock fell when the company beat the consensus.

In the whacky mixed up minds of the sell-side, Wall Street analysts, the company only performed as expected despite crushing the consensus. What I don’t get is, if they saw so much strength, why didn’t they raise their targets? Aren’t the analysts supposed to be helping their clients with that kind of information before the earnings come out?

Palo Alto Networks Beats, Raises Guidance

Palo Alto Networks was expected to produce strong results because of building momentum within the software and cybersecurity spaces. The uptick in momentum was sparked by the pandemic when Americans shifted to work-at-home/stay-at-home but it is not dependent on it. The shift to digital was already underway, the pandemic merely accelerated that trend.

The salient fact that investors should take away from the earnings report is that revenue grew 18% from the previous year and all other metrics support continued strength. Sales of next-gen security grew to 20% total billings for a 97% 3-year CAGR, sales of core products accelerated to 19% growth, and Total billings and deferred earnings for the quarter accelerated to 32% YOY growth.

"We had a strong finish to our fiscal year, with fourth-quarter billings accelerating to 32% year-over-year growth, driven by strong execution, work-from-home tailwinds, and continued success in next-gen security," said Nikesh Arora, chairman and CEO of Palo Alto Networks.

The problem for the analysts, if you can call it that, is the guidance. While the company offered positive guidance with revenue growth, billing growth, and EPS growth it wasn’t far enough above consensus to get them excited. They were already expecting the strength making this a classic case of buying the rumor and sell the news. The thing to remember is the news is good despite the failure to impress, and points to solid growth for this company over the next year at least.

Palo Alto Networks Announces A New Acquisition

Palo Alto Networks announced a new acquisition with the Q4 earnings report that should boost results later in the year. The target is Crypsis Group, a firm specializing in cyber-security incident response. The deal is meant to complement and enhance Palo Alto’s Cortex XDR platform as well as facilitate top and bottom-line growth. Looking forward, the cybersecurity industry is expecting to see growth in the range of $60 billion dollars, and Palo Alto Networks is well-positioned to capitalize on it.

The Technical Outlook: Palo Alto Falls To Support

The Q4 earnings report is great for two reasons. The first is that it confirms the companies outlook for growth. The second is that the market was expecting what it got, and that fact has led to another buying opportunity today.

In the technical sense, there are also two things going for this stock. The first is that it is in a marked uptrend. The second is that today’s action has prices finding support at the $260 level and well above the short-term moving average (which is also above the previous all-time high).

In the near-term, investors should expect shares of Palo Alto to continue trading along or near support with the possibility of moving lower, perhaps to the short-term moving average. Longer-term, a touch to the moving average should produce a trend-following bounce that will take this stock to new highs.