Chart of the Day – Palo Alto Networks (PANW)

by riskreversal November 21, 2016 3:11 pm • Chart of the Day

Palo Alto Networks (PANW) reports their fiscal Q1 results after the close. The options market is implying about a 6.5% one day move in either direction tomorrow, which is shy of the 4 qtr average of 7.75%, but rich to the long term average of 5.6% since going public in 2012.  The stock has rallied the day after earnings in 11 out of 15 instances, but sporting declines of 7% and 12% in the last two reports.

Investors have been a bit more critical of late of once loved growth stock valuations, especially when revenue growth decelerates and GAAP eps losses remain constant. In the case of PANW, fiscal 2017 sales growth is expected to moderate to 33% yoy from last year’s 49% and the prior two years of 51% & 55%, but it’s impossible to ignore the massive spread between the expected adjusted eps of $2.79 in f2017 vs the consensus GAAP loss of 1.90 a share!

To say that PANW has been volatile in 2016 would be an understatement, dropping nearly 40% in the first 6 weeks of the year.  In 2016 along the stock has had three different 40% moves and one 30%.  PANW appears to have technical resistance at $165, and good support down near its uptrend from the June lows near $150:

[caption id="attachment_68337" align="aligncenter" width="600"]PANW 1yr chart from Bloomberg PANW 1yr chart from Bloomberg[/caption]

Lastly, while the stock is still down about 10% on the year, and down nearly 20% from its 52 week highs, dramatically under-performing large cap tech, Wall Street analysts remain overwhelmingly bullish with 33 Buy ratings, only 6 Holds and No Sells.

The stock trades at about 6x expected 2017 sales, sporting a nearly $15 billion market cap, assuming a high single digit price to sales multiple maybe you get to a $20 billion takeout, but there seem to be few mega-cap tech companies who might be willing to assume their GAAP loses.