New Trade for October 26th, 2021

Stocks were looking to add to yesterday’s gains this morning after another record-breaking day for the Dow and the S&P.  After the bell; we’ll get quarterly reports from Alphabet (GOOGL), Microsoft (MSFT), Twitter (TWTR), AMD (AMD) and Robinhood (HOOD).  Any surprises from them could steer markets in either direction.   

One of the biggest threats to corporate America is ransomware. The growing possibility of losing access to essential or confidential digital property is a nightmarish scenario for executives as the financial consequences can be enormous.  

But it’s not just major companies that are at risk. We are all threatened with the loss of personal data security as hackers continue to develop new ways to exploit networks, software, and the array of evolving technology services. As the world advances to become more digitized, so too do its threats.

These attacks are among several tailwinds for investors in cybersecurity stocks, says Morningstar senior equity analyst Mark Cash.  The “heightened threat environment, networking changes due to the pandemic changing how security works, legislation ramping up fines for miscues, spending becoming proactive and commanding a larger portion of IT budget, and these headline-grabbing breaches all help the demand,” he says.

Cybersecurity is a young, quickly evolving industry.  Many companies are likely to get filtered out over time.  In this competitive industry where only the strong will survive, the company featured in today’s trade alert is taking bold steps to ensure its place at the head of the pack.     

Palo Alto Network Inc. (PANW) has been helping customers stay ahead of quickly evolving cybersecurity threats for more than a decade.  For nine years straight, the company has been named as a market leader in network firewalls by leading research and advisory company, Gartner.  In fact, it achieved the highest position for ability to execute and the furthest position for completeness of vision in Gartner’s Magic Quadrant for Network Firewalls for 2020, but they haven’t been letting the recognition go to their head.  Over the past few years, Palo Alto has been aggressively expanding its portfolio with significant investments and acquisitions.    

Most recently, their groundbreaking acquisition of Bridgecrew, a developer-first cloud security company, enabled Palo Alto’s Prisma Cloud to become the first cloud security platform to deliver security across the entire lifecycle of an application, from the building stage to deployment to run.  This is the most recent in a string of additions to its portfolio of NGS (next-generation security) services.

In fiscal 2021, which ended this July, Palo Alto’s NGS services generated $1.18 billion in annual recurring revenue (ARR), representing roughly 28% of its top line and surpassing its prior ARR guidance of $1.15 billion.  That segment’s accelerating growth complemented the stable growth of its on-site appliances and services, and its total revenue increased 25% for the full year. 

Palo Alto serves more than 85,000 customers today, compared to about 9,000 customers nine years ago. It expects its revenue to rise 24%-25% in fiscal 2022, and its stock trades at about nine times that forecast. 

Investors will be hoping for strength from PANW as it approaches its next earnings release on November 15th.  Analysts expect earnings of $1.57 per share, representing a 3% decline from Q3 2020 and quarterly revenue of $1.2 billion, up 27.2% from the year-ago period.

Several analysts lifted their price targets in September after PANW’s impressive analyst day.  The 33 analysts offering a 12-month price forecast have a median target of $550, representing a 10.5% increase from the last price.  The consensus among 37 analysts offering recommendations for the stock is to Buy PANW.  There are currently 32 Buy ratings, 4 Hold ratings, and 1 Sell rating.  

Where to invest $1,000 right now...

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