Bank of America analysts downgraded Palo Alto Networks (NASDAQ:PANW) shares to Neutral from Buy with a price target lowered by $25 to $265 per share.
The analysts cite a risk of additional pressure on billings and FCF.
“With the stock up 85% YTD and risk of additional billings growth weakness and further shortening of duration, we downgrade our rating from Buy to Neutral,” the analysts said in a note.
Palo Alto Networks has experienced a notable increase in vendor financing activities over recent quarters, marked by the provision of financing in exchange for long-term commitments and larger deal sizes. Consequently, this has led to substantial balances in billings.
The heightened financing activity, coinciding with a period of economic uncertainty, has exposed Palo Alto to increased risks.
The observed 36% quarter-over-quarter decline in billings reflects Palo Alto's resistance to extending discount levels. Simultaneously, customers are displaying a preference for shorter deal durations.
“If we had confidence that this was a one quarter phenomenon, we would have looked through it, yet management guided 2Q billings to grow 16.6% QoQ, which might set the bar too high, given this is in-line with seasonality of the last two years,” the analysts added.
“We also flag the cases of Fortinet (NASDAQ:FTNT) and SentinelOne (NYSE:S), where further billings weakness drove additional stock pressure. The high bar of expectations suggests risk of further deterioration to billings, in our view, but also a possible negative impact on FCF and challenges to hit the long-term growth targets.”
PANW shares fell 5.4% yesterday.