On Tuesday, Wolfe Research maintained its Outperform rating on Palo Alto Networks (NASDAQ:PANW) stock, with a steadfast price target of $315.00 per share.
The firm's analysis indicates that Palo Alto Networks is trading at a discount compared to its peers, despite its higher-than-average historical free cash flow (FCF) multiples.
Palo Alto Networks' current trading multiple is approximately 30 times the enterprise value to forward two-year free cash flow (EV/FCF FY+2), which surpasses its one, three, and five-year historical averages. These historical averages are approximately 27 times, 23 times, and 21 times, respectively.
The company's valuation is set against a backdrop of a select group of high-efficiency companies, which are expected to have a combined revenue growth and FCF margin greater than 40% in the calendar year 2024. This group trades at a median calendar year 2025 FCF multiple of around 32 times.
Even after adjusting for after-hours trading movements, Palo Alto Networks is valued at a 24% discount at 25 times FCF multiple. When adjusted for FCF growth, the stock trades at 1.4 times, compared to the peer group median of 1.7 times, representing an 18% discount.
Wolfe Research's price target suggests an enterprise value to calendar year 2025 estimated FCF multiple of 26 times. This is double the multiple of Check Point Software Technologies (NASDAQ:CHKP), one of Palo Alto Networks' competitors.
Palo Alto Networks is expected to outpace CHKP, with revenue and FCF growth rates projected to be three times and two times higher, respectively. Despite potential future challenges, Wolfe Research endorses Palo Alto Networks' long-term strategy.
The firm believes the company is well-positioned to seize growth opportunities and become a successful platform in the cybersecurity market.
Additionally, Palo Alto Networks is expected to maintain mid-to-high 30% FCF margins in both the short and long term. Wolfe Research's reiteration of the Outperform rating underscores its confidence in Palo Alto Networks' prospects.
InvestingPro Insights
For investors considering Wolfe Research's Outperform rating on Palo Alto Networks, it's pertinent to note the latest data from InvestingPro. With a Market Cap of $104.48 billion and a P/E Ratio of 43.66, Palo Alto Networks is a heavyweight in the Software industry. The company's revenue has seen a healthy growth of 20.05% over the last twelve months as of Q3 2024, which aligns with Wolfe Research's positive outlook on the company's growth trajectory.
InvestingPro Tips suggest that Palo Alto Networks is expected to see net income growth this year, reinforcing the firm's optimistic revenue and FCF growth projections. Moreover, the company's strong return of 71.62% over the past year further supports Wolfe Research's endorsement of Palo Alto Networks as a robust investment. Notably, the company operates with a moderate level of debt, which could be a reassuring factor for risk-averse investors.
Investors seeking further insights can find additional InvestingPro Tips for Palo Alto Networks at https://www.investing.com/pro/PANW. For a deeper dive into Palo Alto Networks' financial health and to access a comprehensive set of tips, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 19 additional InvestingPro Tips available for Palo Alto Networks, offering a more detailed perspective for informed decision-making.
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