Palo Alto Networks Gets Pounded in After-Hours Trading Tuesday

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Palo Alto Networks Inc. (NYSE: PANW) reported second-quarter fiscal 2017 adjusted diluted earnings per share (EPS) of $0.63 on revenue of $422.6 million. In the same period a year ago, the network security company reported EPS of $0.43 on revenue of $334.7 million. Second-quarter results also compare to consensus estimates for EPS of $0.62 and $429.72 million in revenue.

On a GAAP basis, the company posted a per share net loss of $0.67 compared with a loss of $0.66 in the same quarter a year ago. Adjusted earnings excluded the negative effects of share-based compensation of $1.42 per share and other adjustments, partially offset by $0.26 per share in tax adjustments.

CEO Mark McLaughlin said:

While fiscal second quarter revenue of $423 million was yet another record for the company, we were disappointed that we came in below top-line expectations due to some execution challenges, which we are moving quickly to address.

Steffan Tomlinson, the company’s chief financial officer added:

We ended the quarter with approximately $2.1 billion in cash, cash equivalents and investments and are pleased to announce an incremental $500 million share repurchase authorization, bringing our total repurchase authorization to $1 billion.

The company forecast fiscal third-quarter revenue in a range of $406 to $416 million, a year-over-year gain of 17% to 20%. Diluted, adjusted EPS is pegged at a range of $0.54 to $0.56, including a $0.04 per share investment in the acquisition of LightCyber, which Palo Alto Networks also announced Tuesday. Consensus estimates for the third quarter call for EPS of $0.70 on revenues of $454.63 million. For the full fiscal year, EPS is expected to come in at $2.78 on revenues of $1.8 billion.

The second-quarter results were not terribly good and the third-quarter outlook is even worse. The “execution challenges” the CEO referred to did not help the company’s growth story, and the outlook does not inspire a lot of confidence in continued growth either.

The stock closed at $151.90, and traded down nearly 14% in the after-hours session at $130.83. The 52-week range is $114.64 to $165.69. The consensus 12-month price target was $172.37 before the results were announced, and the high price target is set at $209.00.