Wedbush fears risk of Q4 revenue miss for Palo Alto as 'Friday Night Special' awaits
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Palo Alto Networks (NASDAQ:PANW) is scheduled to report its fiscal fourth quarter results post-market on Friday and Wedbush Securities' analysts are already calling it a "Disaster Timing Move For the Ages."
The analysts said it is one of the biggest PR disasters and black eyes they have seen in decades of covering tech as the pure fear of an unprecedented Friday night special conference call in the summer timeframe has sent investors to the elevators ahead of this moment, with the stock down materially since the news was first received.
Adding to the unease around Palo Alto was Fortinet's (FTNT) soft earnings/outlook which has resulted in the Street fearing the worst and hoping for the best into this Friday conference call that has destroyed shareholder value in this ill fated PR/IR move by Palo Alto, the analysts added.
According to the firm's analysis there is a slight risk for both FQ4â23E Revenues and Billings to miss Street expectations. The analysis also demonstrated that there is a reasonable risk for FY24E Billings and FCF guidance to be below current Street estimates.
The analysts noted that Palo Alto's stock has fallen ~20% since the company announced its earnings call for Friday evening, and a question they have been getting from investors is whether the stock is priced for the guidance coming in below Street estimates or if there is additional downside in the stock.
The firm's analysis showed that the stock is pricing in FCF of ~$3.1B in FY24E or ~$3.25B in CY24E trading at ~22x EV/FCF which would need Billings/Revenues to increase in the high teens/21%.
The analysts think this represents almost a 'best-case' scenario for the shares, and thus, given the risk to the outlook, and also the risk of the actual numbers coming in below what the stock is pricing, there is more downside risk to the stock.
Wedbush maintained its Outperform rating and $290 price target on PANW for its longer term view of the company.
The firm added that for the last four quarters Palo Alto has had modest revenue beats compared to its guidance with revenues coming in below or at the high end of the outlook. Thus the analysts are skeptical if the company would be able to report revenues above the high end of the guidance.

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