Citi lifts Palo Alto Networks stock target to $220, maintains Buy

Tuesday, Palo Alto Networks (NASDAQ:PANW) saw its price target increased by Citi to $220.00 from the previous $205.00, while the firm kept a Buy rating on the stock. According to InvestingPro data, the stock currently trades at $190.39, with analyst targets ranging from $123 to $240. The company’s strong market position is reflected in its substantial $126.34 billion market capitalization, though current valuations suggest the stock is trading above its Fair Value. Citi’s analysis noted that the company’s shares are holding steady despite a free cash flow (FCF) miss and less-than-expected growth in Next-Gen Security (NGS) Annual Recurring Revenue (ARR) and Remaining Performance Obligations (RPO) within the quarter. The firm’s analysts observed that the market is showing a continuous appetite and patience for Palo Alto Networks’ execution at scale, consistent capture of large deals, and diverse investments in GenAI technology.

The report highlighted that although operational leverage was not as strong as anticipated, with product-led revenues outperforming expectations, Palo Alto Networks has committed to a 37%+ free cash flow margin through FY27. The CEO’s confidence in the maturity of the company’s platformization-selling strategy was also noted as a positive sign that could alleviate bearish concerns. InvestingPro data shows the company maintains a GREAT financial health score of 3.19, with revenue growing at 13.86% and a robust gross profit margin of 73.86%.

Citi analysts expressed particular interest in the strategic rebranding of Prisma Cloud, now integrated into Cortex Cloud, viewing it as both a defensive and offensive move. The company’s management has indicated clear paths for customer migration, upgrades, and skill development to minimize disruption to annual recurring revenue and customer dissatisfaction.

In summary, despite an uneven macroeconomic environment, Citi believes that Palo Alto Networks’ potential for operational and FCF profitability, along with multiple opportunities for revenue growth—including firewall cycles, network/SASE upgrades, and SecOps modernization—position the company well for a mid-teens revenue compound annual growth rate. InvestingPro reveals that 31 analysts have revised their earnings upwards for the upcoming period, suggesting strong confidence in the company’s trajectory. For deeper insights into PANW’s valuation metrics, growth potential, and comprehensive financial analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers. These factors, combined with a shift towards the higher end of Citi’s estimates and minor adjustments to the terminal multiple, support the increased price target and Buy rating.

In other recent news, Palo Alto Networks has reported strong financial results for its second fiscal quarter, surpassing several key metrics and prompting multiple analysts to adjust their price targets for the company. Needham increased its price target to $230, citing impressive growth in Remaining Performance Obligations (RPO) and Next-Generation Security (NGS) Annual Recurring Revenue (ARR). Similarly, Susquehanna raised its target to $230, maintaining a Positive rating and highlighting the company’s solid quarterly performance and strategic focus on platformization.

DA Davidson also revised its price target upward to $225, noting that Palo Alto Networks met or exceeded all guided metrics, despite Free Cash Flow (FCF) coming in below consensus expectations. Meanwhile, Piper Sandler raised its target to $200, maintaining a Neutral rating, acknowledging the company’s revenue and margin beats but expressing concerns over slower bookings growth. Stifel reiterated a Buy rating with a $225 target, emphasizing strong quarterly results and the company’s expectation to maintain a 37% or higher Adjusted FCF Margin through fiscal year 2027.

Palo Alto Networks’ recent success in securing large deals, particularly in the EMEA and APAC regions, has been a focal point, with the company achieving its largest deals ever in these areas. The firm’s platformization strategy continues to gain traction, contributing to a significant increase in platformized customers and large-scale deals. Despite some concerns over NGS ARR growth not showing as much upside as in previous quarters, the company’s strategic direction and market position remain well-regarded by analysts.

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