Palo Alto Networks rises as BofA boosts price target on cloud transition
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Palo Alto Networks (NASDAQ:PANW) shares rose early on Monday after investment firm Bank of America raised its price target on the cyber security company, noting its continued "successful transition" to the cloud.
Analyst Tal Liani, who rates shares buy, raised his price target to $675 from $565, noting that it grew annual recurring revenue 70% year-over-year in the second quarter, after a 76% rise in its fiscal first-quarter. Couple with third-quarter guidance implying a 48% growth rate, it's likely that Palo Alto will continue to see strong growth for the foreseeable future.
"As Cloud/Software growth continues to accelerate and outpace the legacy parts of the business, we believe the stockâs valuation should eventually grow to SaaS-like valuation levels," Liani wrote in a note to clients.
Palo Alto Networks (PANW) shares rose slightly more than 0.5% to $614.50 in premarket trading.
In addition to strong cloud growth, Palo Alto (PANW) is continuing to generate more revenue from software, as it saw firewall-as-a-platform billings growth of 26% year-over-year in the second-quarter, up from 21% in the year-ago quarter. Software accounted for 40% of Palo Alto's firewall-as-a-platform billings and the company's management expects it to reach 57.5% by fiscal 2024.
"In our view, PANW warrants a higher valuation multiple than that of appliance companies given its migration to Software and Cloud, and we expect the stockâs multiple to expand over time to reach SaaS multiples," Liani added.
Last month, Wedbush Securities analyst Dan Ives said that Palo Alto Networks (PANW), along with several other cybersecurity companies, are entering a "golden age" for network protection.