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Deep Dive: Here’s how Palo Alto Networks stacks up against its main competitors

0

Shares of Palo Alto Networks soared as much as 12% on Aug. 23 after the network security company reported results for its fiscal fourth quarter and said it expected sales to increase by at least 25% in fiscal 2023.

Palo Alto
PANW,
+10.95%

CEO Nikesh Arora described the company’s fiscal guidance as “prudent.” MarketWatch’s Wallace Witkowski summarized the company’s results and its recent history of beating analysts estimates and its own guidance.

Other factors that may have helped lift Palo Alto’s shares included an expansion of its buyback program and a three-for-one stock split planned for Sept. 14.

During fiscal 2022, Palo Alto’s sales increased by 29% to $5.502 billion. The company’s gross profit increased by 27% to $3.783 billion. But that was outweighed by operating expenses totaling $3.972 billion, for an operating loss of $189 million. The diluted net loss per share for fiscal 2022 was $2.71, narrowing from a loss of $5.18 a share in fiscal 2021.

For the fourth quarter of fiscal 2022, the company was profitable, with EPS of 3 cents. It also expected to be profitable on a GAAP basis in fiscal 2023.

But from the immediate reaction, it is clear that investors are fixated on Palo Alto’s sales growth.

What about its competitors? In its annual report for fiscal 2021, Palo Alto listed five “main competitors” by name: Cisco Systems Inc.
CSCO,
-0.04%
,
Check Point Software Technologies, Ltd.
CHKP,
+0.54%
,
Fortinet Inc.,
FTNT,
+1.13%
,
Zscaler Inc.
ZS,
+2.77%

and CrowdStrike Holdings Inc.
CRWD,
+2.91%
.

FactSet lists three more “key” competitors to Palo Alto within the “network and communications hardware” space for which consensus sales estimates are available through 2024. They are included in the chart below.

How quickly are Palo Alto’s competitors expected to grow?

Palo Alto isn’t alone in having a fiscal year that doesn’t match the calendar. In order to compare its expected sales growth with its competitors, we looked at consensus estimates for calendar years 2022, 2023 and 2024 among analysts polled by FactSet.

Here are the nine companies listed by expected two-year compound annual growth rates (CAGR) for sales through 2024:

Company

Ticker

Two-year expected sales CAGR through 2024

Estimated sales – 2022 ($mil)

Estimated sales – 2023 ($mil)

Estimated sales – 2024 ($mil)

Market cap. ($mil)

CrowdStrike Holdings Inc. Class A

CRWD,
+2.91%

33.9%

$2,142

$2,935

$3,837

$39,670

Zscaler Inc.

ZS,
+2.77%

31.2%

$1,243

$1,660

$2,140

$23,124

Palo Alto Networks Inc.

PANW,
+10.95%

21.8%

$6,070

$7,462

$8,998

$50,620

Fortinet Inc.

FTNT,
+1.13%

20.8%

$4,383

$5,299

$6,392

$39,678

Arista Networks Inc.

ANET,
+0.63%

12.3%

$4,064

$4,634

$5,124

$38,686

Motorola Solutions Inc.

MSI,
-0.90%

6.5%

$8,867

$9,416

$10,059

$41,498

Juniper Networks Inc.

JNPR,
+0.55%

4.5%

$5,213

$5,501

$5,690

$9,346

Check Point Software Technologies Ltd.

CHKP,
+0.54%

4.2%

$2,317

$2,427

$2,515

$15,264

Cisco Systems Inc.

CSCO,
-0.04%

4.1%

$52,620

$54,930

$57,024

$197,565

Source: FactSet

Click on the tickers for more about each company. Then read Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch quote pages.

For expected sales growth over the next two calendar years, Palo Alto ranks third, with smaller competitors Crowdstrike and Zscaler taking the top two spots. The largest company on the list, Cisco Systems, brings up the rear.

Leaving the companies in the same order, here’s a summary of opinion among analysts polled by FactSet:

Company

Ticker

Share “buy” ratings

Share neutral ratings

Share “sell” ratings

Closing price – Aug. 22

Consensus price target

Implied 12-month upside potential

CrowdStrike Holdings Inc. Class A

CRWD,
+2.91%

100%

0%

0%

$185.88

$236.50

27%

Zscaler Inc.

ZS,
+2.77%

84%

16%

0%

$163.00

$204.83

26%

Palo Alto Networks Inc.

PANW,
+10.95%

92%

8%

0%

$508.05

$655.41

29%

Fortinet Inc.

FTNT,
+1.13%

69%

31%

0%

$50.32

$71.74

43%

Arista Networks Inc.

ANET,
+0.63%

57%

39%

4%

$127.14

$149.91

18%

Motorola Solutions Inc.

MSI,
-0.90%

72%

21%

7%

$248.66

$286.44

15%

Juniper Networks Inc.

JNPR,
+0.55%

40%

40%

20%

$28.97

$33.28

15%

Check Point Software Technologies Ltd.

CHKP,
+0.54%

41%

37%

22%

$121.71

$137.77

13%

Cisco Systems Inc.

CSCO,
-0.04%

45%

52%

3%

$47.71

$54.05

13%

Source: FactSet

Don’t miss: What’s the best way to invest in tech stocks right now? This strategy is working well for one fund manager.

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