Cybersecurity stock Palo Alto Networks is forming a cup base after it reported July-quarter earnings and revenue this week that topped Wall Street targets amid strong growth in large contracts. It has a rising relative strength line and trades well above its 50-day and 200-day moving averages. This is today's IBD 50 Stocks to Watch pick.
In addition, guidance for PANW stock came in above expectations, further evidence that the company could buck the recent downturn in cybersecurity stocks. Palo Alto said it expects to turn profitable using generally accepted accounting principles (or GAAP) in fiscal 2023.
The company also announced its board of directors approved a 3-for-1 stock split.
PANW stock still has room to grow before reaching its buy point of 650. It gapped above the 200-day line after the earnings news.
Cybersecurity stocks haven't done well over the past few months since enjoying a surge after Russia attacked Ukraine in late February. Right now, IBD's Computer-Software Security group ranks only No. 108 out of 197 industry groups tracked. The security group is down about 23% in 2022, underperforming the S&P 500. The S&P 500 is down about 13%. But some cybersecurity stocks hold high Relative Strength Ratings, such as Palo Alto Networks and CrowdStrike Holdings.
Cybersecurity Stocks That Buck The Trend
According to a Morgan Stanley survey of chief information officers in July, cloud computing and security software remain at the top of priority lists, followed by business intelligence/analytics, digital transformation and artificial intelligence.
"Deal activity during Q4 was robust, and large deal momentum continues to surge with more than 1,200 customers spending over $1 million annually, up from 986,000 in Q4 2021," said Cowen analyst Shaul Eyal in a report.
For fiscal 2023, the company forecast adjusted earnings in a range of $9.40 to $9.50 a share, compared with analyst estimates of $9.23.
Palo Alto said it expects 2023 revenue in a range of $6.85 billion to $6.9 billion. Palo Alto forecast billings in a range of $8.95 billion to $9.05 billion. Analysts projected revenue of $6.74 billion and billings of $8.56 billion. That correlates to respective growth of roughly 23% and 20%.
PANW Stock To Join S&P 500?
Also on Monday, the cybersecurity firm announced that trading for PANW stock on a split-adjusted basis will start on Sept. 14. The company has authorized an additional $915 million in its stock repurchase program.
Morgan Stanley, in a report, said it expects Palo Alto stock to be added to the S&P 500 index in 2023.
Palo Alto said fiscal fourth-quarter profit rose 49% to $2.39 per share on an adjusted basis. Including acquisitions, revenue rose 27% to $1.6 billion. Analysts expected earnings of $2.28 per share on sales of $1.54 billion.
The cybersecurity stock holds a Relative Strength Rating of 92 out of a best-possible 99, according to IBD Stock Checkup. Palo Alto is No. 3 in IBD's software security group, behind leader HireRight Holdings, a workforce risk management software firm. Palo Alto has solid fundamentals, as measured by IBD data analysis, with a 94 Composite Rating, and a 95 EPS Rating.
Follow Michael Molinski on Twitter @IMmolinski
