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Palo Alto Networks (PANW) Down 3.1% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Palo Alto Networks, Inc. PANW. Shares have lost about 3.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Palo Alto Networks Q3 Loss Widens, Revenues Beat

Palo Alto Networks reported mixed third-quarter fiscal 2017 results. Palo Alto Networks reported adjusted loss per share (excluding amortization and other one-time items but including stock-based compensation), on a proportionate tax basis of $0.51. The figure was significantly wider than the Zacks Consensus Estimate of a loss of $0.41.

Quarter Details

Palo Alto Networks’ revenues of $431.8 million surged 24.9% year over year and surpassed the Zacks Consensus Estimate of $413 million. The quarterly revenues came above the guided range of $406 million to $416 million, primarily due to customer wins coupled with an expanding customer base.

Product revenues increased 1.3% to $164.2 million. The company saw a 45.7% surge in subscription and support revenues ($267.6 million). SaaS-based subscription revenues climbed 55% from the year-ago period. Support revenues increased 37% year over year.

Geographically, on a year-over-year basis, revenues from the Americas increased 22%. The figures from Europe, the Middle East and Africa (EMEA) went up 32% while Asia-Pacific was up 33%.

Billings jumped 12% year over year to $544.1 million during the quarter.

Palo Alto Networks’ gross margin decreased 120 basis points (bps) on a year-over-year basis to 71.4% owing to higher cost of sales.

The company reported an adjusted operating loss of $33.7 million compared with a loss of $39.6 million in the year-ago quarter. GAAP operating loss during the quarter came in at $49.1 million compared with a loss of $52.5 million reported in the year-ago quarter. Higher operating expenses (up approximately 17.7% year over year) also impacted operating results.

The company’s adjusted net loss during the quarter came in at approximately $47.5 million. Non-GAAP net income was $57.1 million compared with $42.3 million reported last year. On a GAAP basis, net loss was $60.9 million compared with a loss of $64.1 million reported in the prior-year quarter.

Palo Alto Networks exited the third quarter with cash, cash equivalents and short-term investments of approximately $1.372 billion compared with $1.354 billion in the previous quarter.

Receivables were $364.1 million compared with $386.1 million in the last quarter. Palo Alto Networks’ balance sheet does not have any long-term debt. The company reported cash flow from operations of $211.2 million during the quarter. Free cash flow came in at $162.6 million during the quarter. In the same period, the company repurchased 1.1 million shares worth $113 million.

Guidance

For the fourth quarter of fiscal 2017, Palo Alto Networks expects revenues in a range of $481 million to $491 million, up 20% to 23% year over year. The Zacks Consensus Estimate is pegged at $485.2 million. The company expects non-GAAP earnings per share within $0.78 to $0.80.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Palo Alto Networks, Inc. Price and Consensus

 

VGM Scores

At this time, the stock has a great Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Notably, the Zacks Consensus Estimate moved higher over the last one month. The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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