By Sam Boughedda
Palo Alto Networks' (NASDAQ:PANW) price target was cut to $268 from $274 at Morgan Stanley on Monday, with analysts stating the company has a favorable earnings setup against lower expectations.
The analysts, who maintained an Overweight rating on the stock, explained that the firm's checks indicate solid demand and easing supply constraints on firewall sales.
"Firewall demand remains strong for now based on our checks and competitor results," wrote the analysts. "Supply chain constraints are also continuing to ease, which should drive increased backlog conversion. European channel checks also remain positive with partners noting growing demand/backlog."
They also stated that the company's durability remains underappreciated, and after a weaker-than-expected CQ3 earnings season in security, investor expectations are more cautious on PANW heading into the FQ1 print this week.
"We think this creates a favorable setup as Palo Alto Networks should clear a lower FQ1 bar. Recent partner checks continue to highlight positive momentum, with strong broader platform adoption driving larger deals, durable firewall refresh activity and easing supply chain constraints that should drive upside to product revenue. That said, while relatively more durable, PANW isn't immune to the macro situation and we expect far more limited estimates upside going forward," they added.
"We think a modest FQ1 beat and a FQ2 / FY23 guide that brackets consensus (effectively leaving forward estimates unchanged) should be considered a "win" in an environment where the vast majority of security companies have missed consensus and cut their forward outlooks this earnings season."