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Investing.com -- KeyBanc Capital Markets downgraded Palo Alto Networks (NASDAQ:PANW) to Sector Weight from Overweight saying there are strategic concerns tied to the company’s planned acquisition of identity security firm CyberArk.
The brokerage said it sees limited synergy between Palo Alto’s core focus on network and security operations and CyberArk’s specialization in identity access management.
“We think customers will prefer to use an independent vendor solely focused on identity,” analysts at Keybanc said.
It also flagged a risk that customers may prefer to work with a standalone identity provider rather than a broader platform vendor.
Unlike prior expansions by Palo Alto into adjacent markets, KeyBanc said this deal lacks the advantages of a replacement cycle or first-mover edge, and questioned whether it fits naturally within the company’s existing product suite.
The downgrade also follows partner and customer feedback suggesting more aggressive pricing behavior in recent months, which KeyBanc said raises questions about organic demand for Palo Alto’s current software portfolio.
While the firm acknowledged that its recent intra-quarter checks were strong and that July trends could support fourth-quarter results, it now sees the stock as fairly valued at roughly 33 times estimated 2026 free cash flow.
No changes were made to estimates.
“We believe one possible explanation for why previous cybersecurity leaders faltered was because of large, disruptive M&A. Palo has done well integrating its acquisitions to date, but this is a considerably larger scale