Shares of cybersecurity company Palo Alto Networks (PANW +2.21%) could soar to $425, according to analysts at BTIG, who recently raised their price target on the stock from $343 to $425 while maintaining a "buy" rating.
They cited their belief the company will report in-line results in the fiscal second quarter and maintain its fiscal 2024 guidance. Palo Alto is scheduled to report results after the market closes on Feb. 20.
NASDAQ: PANW
Key Data Points
Sluggish billings growth
Billings, the amount invoiced to customers in a given period, has been a weak spot for Palo Alto in recent quarters. This metric grew just 16% year over year in the quarter that ended on Oct. 31.
For the fiscal second quarter, Palo Alto expects to grow billings 15% to 18% with a tighter range of 16% to 17% expected for the full year. BTIG is confident the company can hit these targets, although it did point to one headwind: Prisma Cloud, the company's cloud application security product, is facing increased competition, leading to a deceleration in growth.
Palo Alto CFO Dipak Golechha pointed to the "cost of money" as a key driver of the sluggish billings growth in the fiscal first quarter. A tough macroeconomic environment is putting a chill on demand, and the company doesn't expect its results to improve much this year.
Is Palo Alto Networks stock a buy?
Palo Alto is a major player in the cybersecurity market with revenue expected to reach around $8.2 billion in fiscal 2024. While analysts are optimistic about the stock's upward trajectory, the valuation should give investors some pause.
Management is expecting adjusted earnings per share between $5.40 and $5.53 in fiscal 2024. The midpoint of this range represents a price-to-earnings ratio of roughly 67 as of this writing. At BTIG's new price target, the P/E ratio would jump to 77.
With billings and revenue growth stuck in a low double-digit range, this valuation is tough to swallow. Shares of Palo Alto have already gained about 24% in 2024, but investors may be getting ahead of themselves.
