Palo Alto Networks: 2013 Is Company's Big Year
"We like Palo Alto Networks (PANW) as a way to gain exposure to Network Security, which we believe will be an IT category that outperforms in 2013," wrote Baird Equity Research, in a note released on Friday. "Importantly, the company is demonstrating an ability to broaden its footprint in Large Enterprise accounts (now the primary firewall in ~50% of deployments) and has noted good initial traction with subscription sales (additional features sold via SaaS)."
Baird rates Palo Alto "outperform."
Topeka Capital Markets on Friday initiated coverage of Palo Alto with a "buy" rating and a $65 price target.
"We expect Palo Alto to couple rapid product revenue growth and improving revenue visibility with its even faster growing subscription/service business with significant operating margin expansion that will fuel 90%+ EPS growth for the next two to three years," wrote Topeka analyst Frederick Ziegel, in a note. "Since shipping its first security appliance in 2007, Palo Alto has helped pioneer the emergence of the Next Generation Firewall (NGFW) market that will, over time, replace large portions of the firewall, Intrusion Prevention and URL filtering markets as we know them today, representing an estimated $10 billion revenue opportunity."
Palo Alto touts its PA-5000 products to protect data centers, large enterprise Internet gateways and service provider infrastructure, offering heavy-duty firewall technology, as well as threat prevention and Virtual Private Network (VPN) features.
Initially, the Silicon Valley-based firm felt plenty of love from investors, pushing its shares steadily upward following its IPO last year. After pricing its offering at $42 a share, the stock climbed more than 35% to reach a 52-week high of $72.61 in early September. Like many tech stocks, however, Palo Alto's shares retreated during the final months of 2012.
Even Palo Alto's fiscal first-quarter earnings blowout last month did relatively little for the stock, as early investors moved away from the security specialist.
Clearly, though, Palo Alto is growing its business, registering 50% year-over-year revenue growth during the quarter. The Palo Alto, Calif.-based firm also expanded its customer base to more than 10,000 customers.
"In its last report, PANW traded off after a good quarter amid very high expectations," wrote Baird Equity Research. "While one of the richer valuations in our coverage universe, we believe PANW will benefit from being one of the few, high-quality, secular growth stories in our space, which we would want to own particularly as the macro environment improves."