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Palo Alto Networks Inc. has Wall Street wondering why the cybersecurity company decided to report earnings and hold its conference call after the close of markets on a Friday.
While Palo Alto Networks’
PANW,
earnings have bounced around the weekly calendar in recent quarters, it’s unusual for companies in the S&P 500 index
SPX
to post results on a Friday after the closing bell. The last S&P 500 company to do so was Nike Inc.
NKE,
in December 2020, according to Dow Jones Market Data, and aside from that, there were no others going back to the start of 2018.
Palo Alto Networks is a new entrant to the index, having gotten the nod in June.
Wolfe Research analyst Joshua Tilton said the Friday reporting date “has left investors very uneasy,” especially since the fiscal fourth-quarter report is also expected to bring a new full-year outlook as well as targets for the medium term.
In keeping with the Friday earnings theme, Tilton used football metaphors to discuss the situation facing Chief Executive Nikesh Arora.
“While we don’t expect the news from the field to be perfect, we remind investors that this is Nikesh’s time to shine under the Friday Night Lights, and he will not go down without a fight,” Tilton wrote. “So while investor sentiment would have you believe that the QB has a torn ACL, our checks indicate that it’s likely a sprained ankle and that even with a QB on one leg, PANW can convert on 4th down and deliver a 4Q billings beat of 3%.”
Tilton rates the stock at outperform with a $255 target price.
In a Tuesday note, Guggenheim analyst John DiFucci, who has a neutral rating on Palo Alto Networks, said that “investors must feel like yo-yos over the last month.”
While the company has “performed admirably through a difficult macro period,” DiFucci said that his early field checks for the fiscal fourth quarter hinted Palo Alto Networks “wasn’t immune.”
“Concerns were exacerbated by the company’s choice to uncharacteristically release earnings on a Friday (Aug 18) after the close in the summer, followed by a two-hour conference call, and the offer to conduct one-on-one calls with the sell-side over the weekend to clarify issues,” DiFucci said. Then, the analyst added, recent field checks showed end-of-the-quarter strength, “bringing things full circle.”
“We’ve been asked what this all means and frankly, we don’t know,” DiFucci said. “In our experience, it’s not usually positive when management’s actions differ materially from the norm but given the complexity of Palo Alto Network’s business model and sometimes opaque disclosure, it’s hard to be sure of anything.”
That said, DiFucci expects fourth-quarter results to be in line with expectations, but he’s more cautious about the company’s forecast.
Analysts surveyed by FactSet, on average, expect fiscal fourth-quarter earnings of $1.29 a share on revenue of $1.96 billion.
On Tuesday, Morgan Stanley analyst Hamza Fodderwala, who has an overweight rating on Palo Alto Networks and considers the stock a “top pick,” sees a “more favorable setup” into earnings, and said the unusual timing could possibly hold good news.
Fodderwala, who sees the company “firmly on the path” to a $100 billion market cap — compared with its current $67 billion — said Palo Alto Networks could announce a potential nine-figure U.S. Department of Defense contract that could drive revenue and billings.
“We think Palo Alto Networks could potentially win its largest-ever deal with the DoD worth an estimated $150-$200 million over the next 5 years, if deployed departmentwide,” Fodderwala said in a note, reminding investors that the company announced its last nine-figure DoD deal just before its October-quarter earnings release last year.
Read from last quarter: Palo Alto Networks, software industry to undergo AI ‘transformation’ over next 12 months, CEO says
Palo Alto Networks shares are up 55% year to date, while the ETFMG Prime Cyber Security exchange-traded fund
HACK
is up 15%, and the S&P 500 is up 16%.
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