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Palo Alto (PANW) Beats Q1 Earnings and Revenue Estimates

Palo Alto Networks PANW reported first-quarter fiscal 2021 non-GAAP earnings of $1.62 per share, which surpassed the Zacks Consensus Estimate $1.34. Moreover, the bottom line compared favorably with the year-ago quarter’s earnings of $1.05 per share.

The company’s revenues of $946 million improved 23% year over year. The figure also beat the Zacks Consensus Estimate of $920.7 million.

The top line was primarily aided by several deal wins and increased adoption of the company’s next-generation security platforms on the rise in remote-working trend and heightened need for stronger security. Growing traction in the Prisma and Cortex offerings also acted as a tailwind.

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Quarterly Details

Product revenues increased 2.6% year over year to $237.3 million and contributed to 25% of the total revenues. The company’s subscription and support revenues, which accounted for 75% of the total revenues, improved 31.1% to $708.7 million.

Further, billings improved 21% year over year to $1.1 billion. Deferred revenues jumped 31% to $3.9 billion.

Palo Alto’s non-GAAP gross margin contracted 80 basis points (bps) on a year-over-year basis to 75.8%. However, non-GAAP operating margin improved 590 bps to 21.7% mainly due to lower operating expenses as a percentage of sales. Operating expenses as a percentage of revenues shrunk 670 bps to 54.1%.

Palo Alto exited the fiscal first quarter with cash, cash equivalents and short-term investments of $3.22 billion compared with $3.75 billion recorded at the end of the previous quarter. The company’s balance sheet does not carry any long-term debt.

During the quarter, it generated cash flow from operations of $534.9 million and free cash flow of $505.3 million.

Guidance

For second-quarter fiscal 2021, Palo Alto anticipates year-over-year revenue growth of 19-21%, which comes in between $975 million and $990 million. Billing growth is anticipated between 17% and 19%, ($1.17 billion-$1.19 billion).

Non-GAAP earnings per share are estimated in the range of $1.42-$1.44.

For fiscal 2021, the company projects revenue in the $4.09 billion and $4.14 billion, indicating year-over-year growth of 20%-21%. Billing growth is anticipated between 18% and 19%, ($5.08 billion-$5.13 billion).

Palo Alto forecasts fiscal 2021 adjusted earnings between $5.70 and $5.80 per share.

Zacks Rank & Stocks to Consider

Palo Alto currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector include Arrow Electronics ARW, NVIDIA NVDA and Covetrus CVET, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Arrow, NVIDIA and Covetrus is currently pegged at 8.5%, 20.1%, and 20.1%, respectively.

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