Palo Alto Networks (PANW) Shares Plunge Following Co.’s Light Guidance

network security

PANW Stock: The company’s Light Guidance Overshadows an Otherwise Strong 3Q16

Palo Alto Networks, Inc. (PANW) shares are trading lower by more than 12% to $130.36 in midday trading after the network security company yesterday announced strong 3Q16 revenue that topped analysts’ expectations, but followed with weaker-than-expected 4Q forward guidance.

For the current quarter, the Santa Clara, CA-based company anticipated a YoY growth of roughly 36% to 37%, with revenues of $386 – $390 million, as compared to analysts’ expectations of $389.16 million. The management also gave its bottom line range of $0.48 – $0.50 per share, against projections of $0.50 per share.

During a conference call with analysts following the report, CFO Steffan Tomlinson said that while Palo Alto continues to enjoy “robust pipeline coverage and strong demand,” its outlook also takes into account the current “volatile macro environment”.

The stock has gotten several downgrades today, including one from Needham & Co. to ‘Hold’ from ‘Buy’, and one from Deutsche Bank (DB) to also ‘Hold’ from ‘Buy’ and a price target cut of 60 points to $150 a share. FBN Securities also slashed the name’s price target to $175 from $190 while reiterating an ‘Outperform’ rating.

It’s worth noting that today’s drop in Palo Alto Networks’ shares seems to dismiss the fact that perhaps the company’s outlook was intentionally more conservative than usual based on macro volatility. Furthermore, the stock’s nosedive seems to also ignore Palo Alto’s long history of under-promising and over-delivering. That said, PAWN stock isn’t exactly cheap. Based on next year’s current estimates of $2.61, the name trades with a P/E well over 50. Any time you get a ticker trading with a P/E that high, investors are telling you they expect long-term sustainable and rapid growth. Any changes in the long-term perception of the trend could change the stock’s PPS accordingly. Palo Alto Networks’ current year and next year EPS growth estimates stand at 93.00% and 57.20%, compared to the industry growth rates of 10.30% and 20.70%, respectively. PANW has a t-12 price-to-sales ratio of 11.39.

Palo Alto Networks Inc. recently traded at $130.85, a loss of $17.33 over Thursday’s closing price. The name has a current market capitalization of $11.56 billion.

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