Should You Buy, Sell or Hold Palo Alto Networks Before Q2 Earnings?

Palo Alto Networks, Inc. PANW is scheduled to report its second-quarter fiscal 2025 results on Feb. 13.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Palo Alto Networks projects its fiscal second-quarter revenues in the range of $2.22-$2.25 billion, which suggests a year-over-year increase of 12-14%. The Zacks Consensus Estimate is pegged at $2.24 billion, which implies growth of 13.3% from the year-ago reported figure.After a two-for-one stock split of PANW stocks on Nov. 20, 2024, the consensus mark for PANW’s fiscal second-quarter non-GAAP earnings has remained unchanged at 78 cents over the past 90 days, which calls for a 6.9% increase from the year-ago quarter’s earnings.Image Source: Zacks Investment ResearchPalo Alto Networks’ earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.6%.Palo Alto Networks, Inc. Price and EPS Surprise Palo Alto Networks, Inc. price-eps-surprise | Palo Alto Networks, Inc. QuoteEarnings Whispers for PANWOur proven model does not conclusively predict an earnings beat for Palo Alto Network this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.Though PANW currently carries a Zacks Rank #3, it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Factors Likely to Influence PANW’s Q2 ResultsPalo Alto Networks’ second-quarter performance is likely to have benefited from the strong momentum stemming from deal wins, which is expected to have boosted its top line. The strong demand for form factor hardware products, particularly machine learning-powered models that ensure zero-trust network security for organizations, is expected to have contributed to the quarterly performance.The growing and accelerated migration to the cloud is likely to have boosted the adoption of its platforms. Moreover, the increased use of the cloud and remote networks in a hybrid working environment has resulted in escalating cyberattacks. This is leading to a rise in the demand for cybersecurity solutions. PANW’s fiscal second-quarter performance is likely to have benefited from this demand surge.Federal Risk and Authorization Management Program (FedRAMP) recognitions are boosting the adoption of Palo Alto Networks’ products by government organizations. The company’s Prisma Access, Cortex XDR, Cortex Data Lake, Prisma Cloud and WildFire received FedRAMP recognitions. This FedRAMP recognition reflects the U.S. public sector’s trust in PANW’s IoT security solutions. This is anticipated to have encouraged the adoption of its products during the period in discussion.A higher software mix, normalization in the supply-chain environment and efficiencies in customer support are anticipated to have aided the gross margin in the to-be-reported quarter.Price Performance & ValuationIn the past year, shares of Palo Alto have risen 5.4%, underperforming the Zacks Internet – Software industry, Zacks Computer and Technology sector and S&P 500 index’s growth of 27.7%, 20.7% and 20.9%, respectively. PANW stock has also underperformed its peers, including CrowdStrike CRWD, Fortinet FTNT and Check Point Software Technologies CHKP, which have registered growth of 33.5%, 55.9% and 32%, respectively, in the past one year.One-Year Price Return PerformanceImage Source: Zacks Investment ResearchNow, let’s look at the value Palo Alto offers investors at the current levels. PANW is trading at a premium with a forward 12-month P/S of 13.04X compared with the industry’s 3.31X, reflecting a stretched valuation.Forward 12-Month P/S ValuationImage Source: Zacks Investment ResearchInvestment ConsiderationPalo Alto is a leader in cybersecurity, offering solutions that address network security, cloud security and endpoint protection. Its next-generation firewall and advanced threat detection technologies are widely recognized and adopted globally.PANW’s innovative product offerings, strong customer base and expanding market opportunities in areas like Zero Trust and private 5G security solutions drive its growth potential. Palo Alto's strategic vision and continuous technological advancements make it a compelling long-term investment opportunity.Nevertheless, Palo Alto’s near-term prospects might be hurt by softening IT spending as enterprises postpone large tech investments due to macroeconomic uncertainties and geopolitical issues. Over the past year, Palo Alto Networks has reported a slowdown in revenue, billings and adjusted earnings growth, citing uncertain macroeconomic conditions as the main cause.ConclusionWhile Palo Alto's strong market position is encouraging, significant volatility and high valuation warrant caution. The company's slowing sales growth rates and macroeconomic uncertainties pose near-term risks.Therefore, we believe investors should wait for a better entry point for Palo Alto, given the modest growth prospects and a stretched valuation in the near term.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. 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