Each year, global consulting firm PwC surveys thousands of the world's top corporate executives to get a sense of how they feel about politics, the economy, and the potential risks to their businesses. This year marked the 26th edition of the survey, and cyber threats were featured as an important theme.
Of the 4,410 respondents, 25% believe they will be either highly or extremely exposed to cyber risks over the next five years. Additionally, when asked how they planned to mitigate exposure to geopolitical conflicts over the next 12 months, investing more money in cybersecurity was the executives' top response.
Investors could benefit from adding cybersecurity stocks to their portfolios, and Palo Alto Networks (PANW -1.71%) is an industry leader. Its stock has the support of Wall Street, with the overwhelming majority of analysts tracked by The Wall Street Journal recommending buying it. Here's why.
Image source: Getty Images.
Palo Alto claims it's the largest artificial intelligence (AI)-based cybersecurity company. Palo Alto Networks has the industry's most comprehensive portfolio of cybersecurity products. It operates across three core segments -- cloud security, network security, and security operations -- and is working to integrate AI-powered capabilities across them all.
When it comes to network security, Palo Alto is a recognized leader in multiple categories. Its VM firewall, designed to add an extra layer of protection to private and public clouds, is ranked No. 1 in the industry for market share. Since the company is one of the largest providers of cybersecurity in the world, it collects an enormous amount of data, which means it's well positioned to train AI models to help protect its customers.
It analyzes 750 million new data points per day, leading its AI and machine learning models to detect 1.5 million unique, never-before-seen attacks daily. The end result: Palo Alto's AI blocks 8.6 billion attacks on behalf of customers every 24 hours.
Some of the largest organizations in the world trust Palo Alto as their primary cybersecurity provider. In the fiscal 2023 third quarter (ended April 30), bookings from customers spending a minimum of $10 million annually soared by 136% year over year. It was the company's fastest-growing customer cohort (though it's also the smallest).
Bookings from customers spending at least $1 million and at least $5 million grew by 29% and 62%, respectively. Overall, these numbers highlight the surge in demand for advanced cybersecurity tools even during this difficult economic period.
Palo Alto delivered a strong financial performance in Q3
Palo Alto generated $1.7 billion in revenue during Q3, which represented 24% year-over-year growth. But its remaining performance obligations (RPOs) soared by 35% to an all-time high of $9.2 billion. RPOs are a key metric because they reflect the company's pipeline of work, and they're expected to convert into revenue in the future.
But Palo Alto's newfound profitability is what investors are most excited about. In Q3, the company delivered $107 million in net income on a generally accepted accounting principles (GAAP) basis (often referred to as "true" profit), which translated to $0.31 in earnings per share. It marked the fourth consecutive quarter Palo Alto was GAAP profitable following several years spent running losses while investing in its product portfolio.
The company achieved the result primarily through cost discipline. It increased its operating expenses by just 17% year over year in Q3, and since that was slower than the rate at which its revenue grew, more money flowed to the bottom line as profit.
Wall Street is overwhelmingly bullish on Palo Alto Networks' stock
Palo Alto stock has soared 56% in 2023 and currently trades at an all-time high, but that hasn't deterred the professionals on Wall Street. The Wall Street Journal tracks 44 analysts covering the stock, and 34 have given it the highest possible buy rating. Five analysts are in the overweight (bullish) camp, while the remaining five recommend holding. Not a single analyst recommends selling.
That's an overwhelming bullish consensus. The analysts' average price target is $236.33 per share. While that only represents a potential upside of 11.6% from where Palo Alto stock trades today, it might simply represent one small step on a long-term journey higher, thanks to the growing importance of the cybersecurity industry.
As a result, investors might do well to follow Wall Street's lead by buying Palo Alto Networks stock now.
