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The Ratings Game: Palo Alto Networks stock heads for best day ever, record prices as acquisition spree returns results

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Palo Alto Networks Inc. shares were on track for their best one-day performance ever Tuesday, as well as record prices as analysts praised the positioning of the cybersecurity company following its multiyear spree of acquisitions.

Palo Alto Networks
PANW,
+19.09%

shares rallied nearly 20% in morning trading to touch a record intraday high of $445.45, on track to close well higher than their record closing price of $403.64 set on Aug. 5. Shares have never gained as much in a single day, with the stock rising a record 17.2% on June 1, 2017, the day after reporting earnings.

The software company’s quarterly results and outlook topped Wall Street estimates late Monday, but the more important information was the lack of a new acquisition after Palo Alto Networks averaged a new acquisition every quarter for more than three years, showing signs that it is settling into its transformation.

Many analysts cited Palo Alto Networks’ billings growth as a highlight of the report as large cybersecurity hacks are becoming more prevalent. Billings, which reflect future business under contract, rose nearly 35% to $1.87 billion for the quarter, compared with $1.39 billion a year ago, while the Street was expecting $1.71 billion.

Jefferies analyst Brent Thill, who has a buy rating and raised his price target to $450 from $420, said the company “easily crossed off investor concerns” with its billings growth and guidance, M&A “breather” and share buybacks.

“We believe that the leader in network security remains well-positioned to meet customer needs in a hybrid world given formidable investments in cloud security and focus on go-to-market,” Thill said.

Mizuho analyst Gregg Moskowitz, who has a buy rating and raised his price target to $525 from $475, said Palo Alto Networks reported a “truly impressive quarter.”

“We remain very constructive on the improving mix shift toward higher-growth recurring revenue, and we reiterate our view that PANW easily possesses the strongest array of cloud assets among traditional network security vendors,” Moskowitz said.

Stifel analyst Adam Borg, who has a buy rating and hiked his price target to $490 from $455, said it is important to note that Palo Alto Networks’ strong outlook shows it expects the “strong cybersecurity spending environment” to continue.

“Net/net, we continue to believe Palo Alto is well positioned across its network, cloud, and security operations center focus areas and has a number of drivers to sustain at least high teens top-line growth along with operating margin and free cash flow expansion in coming years,” Borg said.

Raymond James analyst Adam Tindle, who has an outperform rating and raised his price target to $450 from $410, had one concern: That the company’s margin outlook was below Street estimates but that it wasn’t as bad as feared.

“This was coupled with a commitment to margin improvement beyond FY22, a move away from substantial M&A, and implies a period of margin expansion, cash flow improvement, and more shareholder-friendly capital allocation which should dominate the narrative for some time,” Tindle said.

Of the 36 analysts that cover Palo Alto Networks, 32 have buy ratings, three have hold ratings, and one has a sell rating. Of those, 22 hiked their price targets Tuesday while one lowered theirs, resulting in an average price target of $475.50, up from a previous $445.18, according to FactSet data.

Palo Alto Networks shares are up 66% for the past 12 months. In comparison, the ETFMG Prime Cyber Security ETF
HACK,
+1.81%

is up 30%, while the S&P 500 index
SPX,
+0.19%

is up 31% and the tech-heavy Nasdaq Composite Index
COMP,
+0.39%

is up 32%.

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