How Much Upside Does Palo Alto Networks’ Stock Have?

Palo Alto Networks (NYSE: PANW) is a play on the secular transition of security software to the cloud. The company’s operating system approach towards security software, coupled with a renewed focus on sales efficiency, is likely to lead to shareholder value creation moving forward.

Our interactive dashboard on Palo Alto Networks’ Price Estimate captures our expectations for the company in the near term. You can modify the key drivers to visualize the impact on the company’s valuation. Our valuation estimate is around 15% higher than the current market price.

Palo Alto Networks appointed Nikesh Arora (ex-Softbank, ex-Google) as CEO in June 2018. Under his leadership, Google’s European business grew 10x to $8 billion from $800 million in five years versus a target of $4 billion. Coupled with Palo Alto Networks’ strong product offerings, he could potentially deliver strong growth moving forward. The company’s Q4 results may be indicative of a period of growth acceleration – revenue for the quarter and the year grew +29% y-o-y to $658.1 million and $2.3 billion, respectively, with an increasing shift of mix toward the cloud. The company has even upped its guidance for Q1 fiscal 2019:

• Q1 2019 Revenue: $625 million to $635 million, up 25-27% y-o-y
• Q1 Non-GAAP EPS: $1.04 to $1.06

Also of interest is that there is likely to be speculation about a potential acquisition of Palo Alto Networks going forward, given Arora’s background with Softbank and the fact that his compensation is tied to the company’s market performance. That said, even without any M&A activity, Palo Alto Networks appears to have substantial upside potential given its high-quality product suite of security offerings across endpoints and growth in the underlying addressable market.

Do not agree with our forecast? Create your own price forecast for Palo Alto Networks by changing the base inputs (blue dots) on our interactive dashboard.