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Palo Alto (PANW) Loses Over 12% Value on Weak Q1 Results


Shares of Palo Alto Networks Inc. PANW have been losing momentum since it reported its first-quarter fiscal 2017 results and provided tepid revenue guidance for the forthcoming quarter.

Palo Alto Networks shares have plunged over 12% since it reported its quarterly numbers on Nov 21. This also compares unfavorably with the IT Services industry’s gain of 0.62%.

The company started fiscal 2017 on a dismal note by reporting lower-than-expected first quarter results. The company posted adjusted loss per share (excluding amortization and other one-time items but including stock-based compensation) on a proportionate tax basis of 58 cents, which was significantly wider than the Zacks Consensus Estimate of a loss of 27 cents and a loss of 36 cents in the year-ago quarter.

Although 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) also 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 a range of $426 million to $432 million. The Zacks Consensus Estimate at that time was pegged at $438 million.

We believe that 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.

Nonetheless, the company has been able to continuously register revenue growth of over 30% for the past several quarters. This makes us optimistic about its future performance. Also, customer wins coupled with the expansion of the existing customer base are the other positives. We believe that the company’s product refreshes will boost revenues, going forward.

Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader technology sector are Amdocs Limited DOX, Barracuda Networks Inc. CUDA and CDK Global Inc. CDK, all of which carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amdocs has witnessed upward estimate revisions in the last 30 days. It has surpassed the Zacks Consensus Estimate twice while matching the same on two other occasions in the trailing four quarters with an average positive surprise of 2.78%.

Barracuda has witnessed upward estimate revisions in the last 60 days. It has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 525.00%.

CDK Global has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 9.16%. It has a long-term EPS growth rate of 12.5%.

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