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On Wednesday, JPMorgan adjusted its price target for Palo Alto Networks (NASDAQ:PANW), reducing it slightly from $225.00 to $221.00, while maintaining an Overweight rating on the company’s shares. The adjustment followed Palo Alto Networks’ quarterly performance, which showcased growth in line with expectations and better-than-anticipated operating profitability. Despite these positive aspects, the company’s stock experienced a decline in after-hours trading, attributed to weaker-than-expected growth in net new annual recurring revenue (NNARR), remaining performance obligations (RPO), and calculated remaining performance obligations (cRPO). According to InvestingPro data, the company maintains a GREAT financial health score and has demonstrated strong revenue growth of 13.86% over the last twelve months, though current trading multiples suggest the stock may be overvalued relative to its Fair Value.
Palo Alto Networks reported revenues and next-generation security annual recurring revenue (NGS ARR) that matched consensus estimates, with product revenue performing slightly better. The company also achieved an unexpected expansion in operating margins, with InvestingPro data showing an impressive gross profit margin of 73.86%. Analysts at JPMorgan highlighted that the company’s product revenue saw a year-over-year increase of 15.8%, driven by Cortex XSIAM momentum and secure access service edge (SASE) traction. The growth of NGS customers with over $5 million and $10 million in ARR was particularly robust, at 41% and 63% year-over-year, respectively. With total revenue reaching $8.57 billion and strong cash flows that adequately cover interest payments, the company demonstrates solid operational execution.
Management commentary provided a positive outlook on the macro environment, noting a brief pause in early April due to tariff-related news but a return to normal operations for the rest of the month. Palo Alto Networks has reiterated its full-year guidance for NGS ARR and RPO, and has raised the lower end of its forecasts for revenue, operating margin, and free cash flow (FCF).
The company continues to invest in security for artificial intelligence (AI), as demonstrated by its recent acquisition of Protect AI, which is expected to close in the first quarter of 2026, and the announcement of Prisma AIRS this quarter. JPMorgan analysts noted that while most vendors in the AI security space are privately held, Palo Alto Networks is well-positioned to capitalize on this emerging market and leverage its scale to cross-sell Prisma AIRS to its existing customer base.
Despite the modest downturn in NNARR and RPO growth, JPMorgan maintains a positive outlook on Palo Alto Networks. With the stock trading at approximately 29 times the firm’s calendar year 2026 FCF estimates after hours, the Overweight rating remains in place as the price target and estimates are adjusted to reflect the latest results. InvestingPro analysis reveals the stock currently trades at a P/E ratio of 100.76x and maintains a strong five-year track record of returns. For deeper insights into Palo Alto Networks’ valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, which includes detailed analysis of the company’s competitive position and growth trajectory.
In other recent news, Palo Alto Networks reported strong financial results for its third quarter, with earnings per share reaching $0.80, surpassing the consensus estimate of $0.77. The company also exceeded revenue expectations, posting $2.29 billion compared to the anticipated $2.28 billion, marking a 15% year-over-year increase. The firm’s non-GAAP operating margin was 27.4%, slightly above the projected 27.0%. Additionally, the annual recurring revenue for its next-generation security products reached $5.09 billion, showing a 34% growth from the previous year.
In light of these results, JMP Securities maintained its Market Outperform rating and a $212 price target for Palo Alto Networks. Meanwhile, Goldman Sachs raised its price target for the company from $215 to $231, reiterating a Buy rating. The firm acknowledged mixed fundamentals but expressed optimism about Palo Alto Networks’ strategic positioning in the cybersecurity industry. Goldman Sachs highlighted the company’s potential to lead strategic enterprise security discussions and benefit from trends in AI security and cloud adoption.
Palo Alto Networks continues to focus on AI and cloud security as strategic priorities, with significant growth observed in its product, services, and subscription revenues. The company is also transitioning to contract manufacturing in Texas, aiming for operational efficiencies. Looking ahead, Palo Alto Networks projects its fiscal year 2025 revenue to range between $9.17 billion and $9.19 billion, reflecting a 14% growth, with expectations for its next-generation security annual recurring revenue to grow by 31-32%.
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