Palo Alto Networks Inc (NYSE:PANW) faced tougher conditions in its fiscal 2023 third quarter and analysts at UBS see a “slightly more difficult setup” for the cybersecurity company as it progresses towards its 2024 year.
Maintaining their ‘Neutral’ rating, the analysts noted that Palo Alto’s headline billings growth of 26% for 3Q, along with a modest increase to 4Q billings guidance to 18%, were very strong results in a demand environment that Palo admits became more challenging.
“In our view, the debate going forward is about the sustainability of multi-year billings, with F3Q again benefiting from 45%+ LT deferred growth (now 4 straight quarters) and current billings decelerating 4pts to 22%,” the analysts wrote in a note on Wednesday.
“From a bookings perspective, RPO (remaining performance obligations) bookings decelerated to 12% y/y and cRPO bookings decelerated to ~<20% y/y.”
Looking forward, the analysts said the company’s 4Q guidance attracts some scrutiny with product growth expected to reaccelerate back to roughly 23% due to transaction timing benefits and also new SD-WAN (software-defined wide area network) SKUs (stock-keeping units) that drive more product versus service revenue/billings.
Along with the affirmation of their Neutral rating on Palo Alto’s stock, the analysts raised their price target to $220 from $200, based on their 25x embedded value/free cash flow estimate for calendar year 2024.
The company’s shares were up 7.4% at $204.14 in early afternoon trade.
Contact the author at stephen.gunnion@proactiveinvestors.com