Morgan Stanley analyst Hamza Fodderwala raised the price target on Palo Alto Networks (NASDAQ:PANW) to $823.00 per share from $670.00 while maintaining an Overweight rating and a Top Pick designation.
More importantly, the analyst believes PANW could become the first $100 billion market cap name in cybersecurity within two years, signaling an upside of roughly 60%. His thesis is based on the fact that PANW has a large installed base, strong secular positioning in Cloud Security, and improving margins.
“After multiple years of heavier investment and M&A, Palo Alto Networks has come out the other side of their investment cycle with a broader platform that's well positioned to address emerging secular growth opportunities within Next Gen Cloud Security. At the same time, demand for core network security solutions (on-premise firewall + attached services) remains strong and an existing installed base of nearly 60K enterprise customers provides a large upsell opportunity for newer Cloud-based offerings,” Fodderwala said in a client note.
These factors should fuel sustained 20%+ topline growth longer term. This should increase FCF with the management more focused on shareholder return rather than M&A.
“With a higher mix of Cloud-based Next Gen Security sales accounting for roughly half of total billings by FY25 (see Exhibit 2), we see PANW valuation closing the gap vs large cap SaaS peers, resulting in a $100 billion market cap (or ~$916 stock price) by CY24. After discounting back to CY23, this yields a 1-year forward Price Target of $823. Given an attractive risk-reward, favorable demand environment and potential for further re-rating on growing Next-Gen SaaS Security mix, PANW remains our Top Pick in cybersecurity,” Fodderwala added.
PANW stock price is up 1.5% today.
By Senad Karaahmetovic