Analyst Note| Mark Cash |
We are raising our fair value estimate for narrow-moat Palo Alto Networks to $490 per share from $440 after its investor day raised our already lofty expectations for the upcoming years. Shares are modestly undervalued, in our view. Fiscal 2024 revenue and billings targets came in higher than our expectations, and we are upbeat that the robust growth comes alongside adjusted operating margin and free cash flow margin expansion. A more bullish outlook on product revenue comes from firewall refreshes, new form factors targeting the midmarket and branch locations, and the recently launched Okyo line for protecting home networks driving strong demand. We believe Palo Alto is strongly executing the platform-based approach in its focus areas of network security, cloud security, and facilitating the needs of security operations teams via automation. The platform-approach helps customers reduce their security toolset sprawl and gain unified security posture visibility, while Palo Alto gains by locking customers into its ecosystem, which we expect to drive margin expansion.