Goldman Sachs maintains Buy rating on Palo Alto Networks stock

On Tuesday, Goldman Sachs analysts reiterated their Buy rating for Palo Alto Networks stock (NASDAQ:PANW), maintaining a price target of $231.00. This aligns with the broader market sentiment, as InvestingPro data shows 36 analysts have recently revised their earnings estimates upward, with price targets ranging from $123 to $235. The analysts highlighted the company’s potential to meet or exceed market expectations for next-generation security annual recurring revenue (NGS ARR) as a key factor for the stock’s performance over the next two years.

The analysts noted that NGS ARR is a significant indicator of Palo Alto’s platform success. With a current market capitalization of $130 billion and revenue growth of ~14% in the last twelve months, the company has established itself as a prominent player in the software industry. This revenue metric includes core network security elements such as advanced subscription services sold with firewalls, virtual firewalls, and secure access service edge (SASE). Additionally, it encompasses newer offerings like Cortex for security operations and Prisma AIRS for AI security.

Goldman Sachs updated its October 2024 analysis to incorporate recent disclosures from May about the NGS ARR mix. The update aims to quantify the balance between attached and new market offerings for fiscal years 2026 and 2027, emphasizing how new market offerings could increasingly drive NGS ARR growth.

The report also discussed Palo Alto’s track record in successfully cross-selling new products to its existing customer base. This is expected to continue, particularly following the company’s recent acquisition of Protect AI. The analysts believe this strategy will further bolster the company’s organic and inorganic contributions to NGS ARR.

Despite previous uneven quarters, the analysts are optimistic about the company’s potential to achieve substantial growth in its new market offerings, addressing investor concerns about the platform’s diversification and integration quality. For deeper insights into Palo Alto Networks’ valuation and growth prospects, InvestingPro offers a comprehensive analysis with over 30 additional financial metrics and exclusive ProTips in their detailed Research Report.

In other recent news, Palo Alto Networks reported a 15% year-over-year revenue increase for its fiscal third quarter, slightly surpassing consensus expectations. The company’s remaining performance obligations (RPO) grew by 19% over the same period, indicating a strong future revenue pipeline. Analysts from UBS maintained a Neutral rating with a $200 price target, citing concerns about the company’s ability to meet ambitious growth forecasts. Meanwhile, Scotiabank (TSX:BNS) reiterated its Sector Outperform rating, highlighting Palo Alto Networks’ commendable product revenue growth and stable free cash flow targets. BNP Paribas (OTC:BNPQY) Exane also maintained an Outperform rating, emphasizing the company’s successful platform strategy, particularly in the Security Information and Event Management (SIEM) space. Susquehanna expressed confidence in Palo Alto Networks’ strategic direction, maintaining a Positive rating and a $230 price target, citing strong third-quarter performance and platformization initiatives. FBN Securities kept its Outperform rating with a $225 price target, noting the company’s solid performance metrics but cautioning about potential profit-taking due to recent stock price increases. These developments reflect a generally positive outlook among analysts for Palo Alto Networks, despite some concerns about growth targets and market conditions.

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