On Nov 24, 2016, Zacks Investment Research downgraded network security solutions provider, Palo Alto Networks Inc. PANW to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Palo Alto Networks’ stock has been on a downtrend ever since it reported dismal first-quarter fiscal 2017 results. Shares slipped 13.3% since the announcement. In fact, the company’s stock price has been declining for a while now, as is evident from its year-to-date plunge of 20.7%.
Coming to the first-quarter results, the company’s adjusted loss per share (excluding amortization and other one-time items but including stock-based compensation), on a proportionate tax basis, was 58 cents. The figure was significantly wider than the Zacks Consensus Estimate of a loss of 27 cents and the loss of 36 cents in the year-ago quarter.
Though Palo Alto Networks’ revenues of $398.1 million surged 34% year over year, it missed the Zacks Consensus Estimate of $400 million.
The company also reported an adjusted operating loss of $38.7 million, which increased from a loss of $21.8 million suffered a year ago. Higher operating expenses (up approximately 38.7% year over year) impacted operating results.
The company also provided a tepid second-quarter revenue guidance. For the second quarter of fiscal 2017, Palo Alto Networks expects revenues in the range of $426 million to $432 million. The Zacks Consensus Estimate is pegged at $432 million.
We believe that all the aforementioned factors led to downward revisions in Palo Alto Networks’ estimates. Over the past seven days, the Zacks Consensus Estimate for fiscal 2017 increased from a loss of $1.10 per share to loss of $1.12.
Also, Palo Alto Networks has been witnessing an increase in operating expenses due to stepped-up investments in research and development, and marketing strategies, which have been offsetting the benefit of higher revenues. Going forward, a volatile spending environment and competition from Cisco Systems, Inc. CSCO and Check Point Software Technologies Ltd. CHKP remain concerns.
Stocks to Consider
A better-ranked stock in the technology sector is Seagate Technology plc STX, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seagate has a long-term expected earnings per share growth rate of 4.05%.
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