On Tuesday, Jefferies, a global investment banking firm, increased its price target for shares of Palo Alto Networks (NASDAQ:PANW) to $450 from the previous target of $350. The firm has maintained a Buy rating on the stock. The adjustment follows a positive assessment of the company's expected financial performance.
The firm anticipates Palo Alto Networks to exhibit stronger than anticipated growth in its second-quarter annual recurring revenue (ARR), with a year-over-year increase of 46%, and in billings, with a 16% rise. This outlook is based on what the firm considers a reasonable set-up and strong performance indicators. The analyst noted that previous quarterly cyber security reports have been largely positive, which bodes well for Palo Alto Networks.
However, the analyst also pointed out that there is a heightened level of expectation placed on the company due to its shares having risen by 26% year-to-date, compared to an 8% increase in the iShares Expanded Tech-Software Sector ETF (IGV), which could be seen as a risk. Despite this, the firm is confident that Palo Alto Networks could report approximately 50% year-over-year ARR growth, which may be bolstered by mergers and acquisitions.
The investment firm views Palo Alto Networks as well-positioned to benefit from ongoing consolidation in the cybersecurity industry. The company's stock is also seen as trading at a premium that is justified by its future cash flow projections, with a 31 times enterprise value to calendar year 2025 free cash flow (EV/CY25 FCF) ratio.
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