Palo Alto Networks Inc. (NYSE: PANW) is scheduled to release its fiscal fourth-quarter financial results after the markets close on Wednesday. The consensus estimates are calling for $1.42 in earnings per share (EPS) and $802.42 million in revenue. The same period of last year reportedly had $1.28 in EPS and $658.1 million in revenue.
Goldman Sachs sounded the alarm over the summer on software stocks, noting extremely high valuations. At the time, these stocks were carrying their highest multiples since the dot-com tech bubble that imploded in 2001. Unfortunately, Palo Alto Networks was one of the companies mentioned in the report.
The lofty current valuations of software stocks reflect the voraciousness of investors today for stocks with strong secular growth prospects. Growth stocks have outperformed dramatically in 2019. This dynamic is not unusual late in the economic cycle, when investors are typically willing to pay a premium for idiosyncratic growth as economic activity decelerates.
In addition to growth, investors have embraced software firms due to their above-average profit margins, as well as their relative insulation from trade conflicts.
Excluding Wednesday’s move, Palo Alto Networks had underperformed the broad markets, with its stock up nearly 6% year to date. In the past 52 weeks, the stock was actually down 13.5%.
A few analysts weighed in on Palo Alto Networks ahead of the report:
- Merrill Lynch has a Buy rating with a $275 price target.
- Robert Baird also has a Buy rating with a $275 price target.
- Evercore ISI rates it as Buy with a $290 target price.
- Raymond James has an Outperform rating and a $260 target.
- JPMorgan has an Overweight rating and a $270 price target.
Shares of Palo Alto Networks traded up less than 1% on Wednesday to $199.88, in a 52-week range of $160.08 to $260.63. The consensus price target is $263.30.