Shares of cybersecurity company Palo Alto Networks (PANW 0.91%) 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.
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.
