New Products, Buyouts To Drive Palo Alto (PANW) Q2 Earnings

Palo Alto Networks, Inc. (NYSE:PANW) is slated to release second-quarter fiscal 2018 results on Feb 26. The question lingering in investors’ minds is whether this cybersecurity company will be able to post a positive earnings surprise in the to-be-reported quarter. Notably, the company has surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 9.5%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 79 cents, representing year-over-year growth of 25.4%. We note that the Zacks Consensus Estimate has remained unchanged over the past 30 days. Additionally, analysts polled by Zacks project revenues of roughly $524.4 million, up 24.3% from the year-ago quarter.

Let’s take a look at the driving factors this quarter.

Factors to Consider

Palo Alto is growing rapidly in the cybersecurity space on the back of its innovative next-generation security platforms. The company’s security platforms have innovative traffic classification engine which helps it identify network traffic by application, user and content. As a result, organizations have in-depth visibility into all traffic and applications, helping the firms control usage, content, risks and cyber threats at the user level.

Therefore, Palo Alto’s security platforms simplify security infrastructure for organizations by eliminating the need for multiple, stand-alone security appliances and software products. This reduces the total cost of ownership, in turn, giving a competitive edge to the organization.

Furthermore, over the last two years, the company has launched several subscription-based products, including WildFire, AutoFocus, Aperture, Traps and Virtual, which have been witnessing strong adoption among organizations.

The company’s innovative product portfolio and continued efforts to enhance the same with advanced features helps Palo Alto win new deals. Notably, during first-quarter fiscal 2018, the company added more than 2,500 customers, bringing the total to more than 45,000 worldwide. It should be noted that in each of the last 23 quarters, Palo Alto has added at least 1,000 customers.

The company’s to-be-reported quarterly result is likely to add a sizable number of new customers, which, in turn, will drive Palo Alto’s top line.

Furthermore, acquisitions have been one of the key strategies of Palo Alto to enhance its product portfolio as well as expand the company’s global reach. Last year, the company acquired LightCyber for $105 million, which expanded its Next-Generation Security Platform. Over the past few years, the company has completed three important buyouts — Morta Security, Cyvera and CirroSecure.

Analysts covering the stock believe the diversity of its products and increased efficiency offered by such buyouts will attract customers. This will again bolster its top line, the benefit of which will trickle down to the bottom line.

Additionally, the company is keen on expanding its cloud exposure through partnerships. It has existing cloud partnerships with companies like Amazon’s (NASDAQ:AMZN) Amazon Web Services and Alphabet’s (NASDAQ:GOOGL) Google Cloud. In August 2017, the company expanded ties with VMware, Inc. Through the new collaboration, Palo Alto will combine its security platform with VMware’s software platform, which provides private cloud-based service to make the cloud-computing environment more secure, simple, flexible, and efficient.

This deal will better equip organizations to handle private cloud technology and control business applications securely. As VMware remains one of the leading companies in the virtualization and cloud computing space, Palo Alto is likely to gain significantly from this alliance and we might witness a glimpse of the same in the quarter under review.

What the Zacks Model Unveils?

Our proven model conclusively shows that Palo Alto Networks is likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chance of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. Palo Alto Networks carries a Zacks Rank #3 and has an ESP of +0.84%.

Another Stock With Favorable Combination

Here is a company you may want to consider as our model shows that this has the right combination of elements to post an earnings beat:

Analog Devices, Inc. (NASDAQ:ADI) has an Earnings ESP of +0.96% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>