Palo Alto Posts 'Healthy' Q4 Print, But UBS Sees Need For M&A, Reinvestment

Palo Alto Networks Inc (NYSE: PANW) reported Thursday with a fiscal fourth-quarter report that marks a "healthy" finish to fiscal 2018 and a "solid start" to fiscal 2019, according to UBS.

The Analyst

Analyst Fatima Boolani maintained a Neutral rating on Palo Alto Networks with a price target lifted from $212 to $232.

The Thesis

Palo Alto Networks' Q4 showed multiple encouraging read-outs, Boolani said in a research report. (See the analyst's track record here.) 

They include:

• Continued momentum in new customer acquisition.
• Twenty-six-percent percent year-over-year growth in product revenue.
• Forty-five-percent year-over-year growth in the top 25 logo cohort.

Yet the print also shows that Palo Alto needs to improve the adoption curve of unattached subs and bring its app framework vision "to fruition," the analyst said.

The product gross margin of 71.3 percent implies a 300-basis point decrease for the full fiscal year, and this "kept a lid" on OPM, which only posted a 60-basis point beat versus the Street's expectations, Boolani said. 

Palo Alto has overall shown a "respectable balance" of growth and profits at scale, but a notable uptick in reinvestment and/or an M&A deal are likely required for the company to see large-scale success across all business lines, the analyst said.

Price Action

Palo Alto Networks shares hit a new 52-week high of $233.50 Friday and were trading up 3.89 percent at $228.68 at the time of publication.

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