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Reasons to Buy Palo Alto (PANW) Amid Current Market Uncertainties

·4-min read

Palo Alto Networks PANW is one stock investors should consider adding to their portfolio to shrug off the prevailing highly volatile market environment and make some gains from its upside potential.

Since the start of 2022, Wall Street has been witnessing high volatility due to several ongoing economic issues, including the outbreak of new COVID-19 variants, skyrocketing crude oil prices, rising inflationary pressure and a shift in Fed's policy to a tougher-than-expected line. The ongoing Russia-Ukraine conflict also remains a key concern among investors.

Such geopolitical uncertainties are likely to continue weighing on investors' sentiments, which might lead to higher volatility in the U.S. equity market. Year to date (YTD), the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 14.4%, 28.9% and 19.7%, respectively.

In such a scenario, top-ranked stocks like Palo Alto can boost one's portfolio. Though the broader market sell-off has led to a fall in the company's share price YTD, the decline has been significantly lower than the major stock indexes as well as other players in the IT security space. Shares of PANW have decreased 8.7% YTD compared with the Zacks Security industry's decline of 11.5%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Why is PANW an Attractive Pick?

Solid Rank & VGM Score: Palo Alto currently has a Zacks Rank #2 (Buy) and a Growth Score of B. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities to investors. Thus, the company appears to be a compelling investment proposition at the moment.

Positive Earnings Surprise History: PANW has an impressive earnings surprise history. The company outpaced estimates in each of the trailing four quarters, the average surprise being 7.1%.

Strong Earnings Growth Potential: The Zacks Consensus Estimate of $7.45 per share for fiscal 2022 earnings suggests year-over-year growth of approximately 21.3%. The consensus mark for fiscal 2023 earnings stands at $9.26 per share, indicating a year-over-year surge of 24.3%. The long-term expected earnings growth rate for the stock is pegged at 31.5%.

Growth Drivers: Palo Alto is benefiting from increased adoption of its next-generation security platforms driven by a rise in the remote working policy among top-notch companies. The cyber security firm continues to win back-to-back deals for offering unique cyber safety solutions, which ensure the blocking of attacks or malicious content. Recently, in May, PANW signed an agreement to integrate its VM-Series Next-Generation Firewall solution with Oracle's ORCL Oracle Cloud Infrastructure Network Firewall to block threats and reduce risk breaches.

Oracle currently carries a Zacks Rank #3 (Hold). Shares of ORCL decreased 13.4% in the past year.

Besides, growing traction in Palo Alto's Prisma and Cortex offerings are acting as a tailwind. The company made strategic acquisitions to accelerate growth through the expansion of its product portfolio and global footprint. In fact, its Bridgecrew buyout in 2021 enabled Prisma Cloud to become the first cloud security platform to deliver security across the full application lifecycle. Likewise, PANW's The Crypsis Group buyout in 2020 strengthened its Cortex platform with expert services for incident response and proactive assurance.

The company's current subscription-based model is aiding it in generating stable revenues while expanding margins. Palo Alto's subscription-based services like AutoFocus, Aperture, Traps, WildFire and Virtual are not only witnessing solid growth but also bolstering the customer base. These might help the cybersecurity firm to improve both the top line and bottom lines.

Other Stocks to Consider

Some better-ranked stocks from the broader Computer and Technology sector are Axcelis Technologies ACLS and Baidu BIDU. While Axcelis sports a Zacks Rank #1, Baidu carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Axcelis' second-quarter fiscal 2022 earnings has been revised 3 cents northward to 99 cents per share over the past 60 days. For 2022, earnings estimates have moved 10.3% north to $4.40 per share in the past 60 days.

Axcelis' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 23.5%. Shares of ACLS have surged 21.3% in the past year.

The Zacks Consensus Estimate for Baidu's second-quarter 2022 earnings has been revised 31 cents southward to $1.38 per share over the past 30 days. For 2022, earnings estimates have moved 3 cents north to $8.27 per share in the past 30 days.

Baidu's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 52.9%. Shares of BIDU have slumped 23% in the past year.


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