Palo Alto Networks (PANW) will report its fiscal Q4 results today after the close. The options market is implying about a $20 or about a 7% move in either direction tomorrow. The stock has moved about 10% on average over the last four quarters with two large declines of 17% in May and 12% in February.
Shares of PANW are up 15% having just made a new all-time high on Friday, and up 111% from its March lows. The stock is sitting right on its steep uptrend but has decent near-term technical support close to its recent breakout level between $240 and $250:
Despite the stock’s 15% gains, year-to-date, expectations appear modest for the print. and full-year fiscal 2021 revenue growth of 18% vs 17% this year. The stock trades 45x FY2021 expected eps growth of 22% (which is still a sizable loss on a GAAP basis) and 6.45x sales, which seems fairly reasonable for a takeout candidate int he space.
So what’s the trade?
If I were inclined to play for a beat and raise I would target a move of 10% to the upside over the next week or so…
Bullish Trade Idea: PANW ($266) Buy Aug 28th weekly 270 – 300 call spread for $7
-Buy to open 1 Aug 28th weekly 270 call for 8
-Sell to open 1 Aug 28th weekly 300 call at 1
Break-even on Aug 28th weekly close (this Friday):
Profits of up to 23 between 277 and 300 with max gain of 23 at or above 300
Losses of up to 7 between 270 and 277 with max loss of 7 at or below 270
Rationale: this trade idea risks 2.7% of the stock price, has a break-even up 4% and a max potential profit up 12.5%
This trade idea is quire binary though, get the direction wrong on earnings tomorrow and the trade will lose most of its value, but I much prefer defining risk into a potentially risky event like earnings in a name like this that has some severe post-earnings swings of late.
If I thought the company would miss and guide lower I might target the low end of the downside support range near $240:
Bearish Trade idea: PANW ($266) Buy Sept 260 – 235 Put Spread for $7
-Buy to open 1 Sept 260 put for
-Sell to open 1 Sept 235 put at
Break-even on Sept expiration:
Profits of up to 18 between 253 and 235 with a max gain of 18 at or below 235
Losses of up to 7 between 253 and 260 with a ax loss of 7 at or above 260
Rationale: this trade idea risks 2.7% of the stock price, breaks even down 4.9% and has a max potential profit down 11.6%