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What Happened in the Stock Market Today

By Jim Crumly – Jun 1, 2017 at 5:05PM

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Palo Alto Networks leaped, Hewlett Packard Enterprise fell, and major market averages started June on a positive note.

The market started the month of June off strong, with the Dow Jones Industrial Average (^DJI -0.77%) and the S&P 500 (^GSPC -1.30%) both closing Thursday at record highs.

Today's stock market 

Index Percentage Change Point Change
Dow Jones Industrials  0.65%  135.53
S&P 500  0.76%  18.26

Data source: Yahoo! Finance.

It was a particularly good day for small-cap stocks, with the Vanguard Small Cap ETF (VB -1.32%) up 1.6%. Financial stocks also outperformed the market, as the Financial Select Sector SPDR ETF (XLF -0.50%) gained 1.3%.

Two Palo Alto-based companies reported last night, and it was very clear which one reflects Silicon Valley's future and which is "old tech." Palo Alto Networks (PANW -1.35%) had the market cheering; Hewlett Packard Enterprise (HPE -0.80%) ... not so much.

Wall Street with flags and street sign

Image source: Getty Images.

Investors cheer Palo Alto Networks

Palo Alto Networks soared 16.8% after reporting earnings Wednesday evening that exceeded both analysts' expectations and its own guidance.  Revenue for the cybersecurity company surged 25% to $431.8 million, compared with a guidance range of $406 million to $416 million, and non-GAAP earnings per share came in at $0.61, compared with analysts' consensus expectations of $0.55, and $0.46 in the corresponding period last year.

The positive results were a welcome change from last quarter, when the company failed to meet its top-line guidance despite growing sales by 26%, and the stock plunged over 20% in a single day. The issue at that point was execution, with the company needing make some changes in its sales organization. Apparently, that has happened.

"We reported record revenue of $432 million in our fiscal third quarter," CEO Mark McLaughlin said, "and added the second highest number of new customers in the company's history. The integrated and highly automated prevention capabilities of our Next-Generation Security Platform continue to differentiate us in the market as we help our customers protect our digital way of life."

Added Chief Financial Officer Steffan Tomlinson: "Expansion within our existing customer base and new customer acquisitions in the quarter drove growth in revenue, billings and deferred revenue. In addition, we continue to balance growth and profitability, as cash flow from operations totaled $211.2 million in the quarter, free cash flow totaled $162.6 million, and we ended the quarter with cash, cash equivalents and investments of $2.1 billion."

Torrid growth of over 20% seems to be intact at Palo Alto Networks. Its guidance for next quarter is for top-line growth of 20% to 23%.

Hewlett Packard Enterprise fails to encourage investors

Shares of Hewlett Packard Enterprise fell 6.9% in trading Thursday after the company reported earnings that met analyst expectations, but provided disappointing guidance for next quarter. Revenue came in at $9.9 billion, down 12%, and the company lost $0.37 per share, compared with a gain last year of $0.18. Excluding one-time items, the company earned $0.35 per share compared with $0.42 in the quarter last year. Guidance for Q3 non-GAAP EPS of $0.24 to $0.28 was considerably below consensus expectations of $0.31.

HPE split away from Hewlett Packard's printer and personal computer businesses in 2015, and investors have been waiting to see whether CEO Meg Whitman and her team can reinvigorate growth in the enterprise business. There was little in this report to offer encouragement on that score. The company is slimming down by spinning off its services business, but the remaining segments are not performing well. Storage revenue was down 13%, server revenue down 14%, and networking slumped 30%. The enterprise group, which accounted for $6.2 billion in revenue out of the $7.4 billion total, delivered, but generated an operating profit margin of only 8.8% compared with 11.7% last year. Given that the technology sector generally has had an upbeat Q2, investors wonder about the future of HPE.

Whitman tried to put a positive spin on the results."We've made significant progress in strengthening HPE to compete and win well into the future," she said on the conference call. "We've been marching toward becoming a smaller, nimbler and financially stronger company that is more committed to customers and partners than ever before." 

Nimbleness and strength are appealing ideas, but investors were hoping for a little less progress in the smallness direction.

Jim Crumly owns shares of Palo Alto Networks. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.

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