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The shares of the leading cybersecurity firm, Palo Alto Networks (PANW), grew by almost 4% today. Palo Alto Networks announced its fourth quarter results of fiscal 2019 on September 4, after the market closed.
The company reported sales of $ 805.8 million, an increase of 22% over the previous year. In addition, its adjusted earnings per share increased by 15% to $ 1.47 in the fourth quarter of fiscal 2019. PANW recorded a business turnover of $ 658.1 million and an EPS of $ 1.28 in the fourth quarter of fiscal 2018.
Analysts expected the company to record sales of $ 802.42 million and EPS of $ 1.42 for the quarter ended in July. Notably, the stock initially lost 9% after trading hours before regaining lost ground and recovering. So, why did the PANW stock initially fall despite higher estimates than Wall Street?
Palo Alto Networks announced the acquisition of Zingbox
In our opinion, it is possible that PANW's shares fell after hours due to the company's announced acquisition. PANW has agreed to acquire Zingbox, an Internet-of-Things (IoT) security company. Of a value of $ 75 million, this acquisition is expected to be finalized in the first quarter of fiscal year 2020.
The number of connected devices could increase exponentially over the next few years. This increase in the number of connected devices should lead to a growing demand for cybernetic solutions. According to the PANW press release,Current IoT point products focus primarily on profiling and device inventory, not on detecting or stopping sophisticated attacks.. "As a result, the need to detect more and more complex malicious attacks continues to increase.
Zingbox provides a cloud-based security service with artificial intelligence (AI) and machine learning technology. In addition, the company focuses on the capabilities of device identification and threats. This acquisition should enable PANW to gain popularity in IoT security and expand its revenue.
Is PANW undervalued?
Shares of Palo Alto Networks underperformed broader indices in 2019 and its shares have gained 7% since the beginning of the year. Despite the disappointing performance of the title this year, PANW has recorded an impressive 115% over the last five years.
The growth indicators for PANW remain intact. Its sales in fiscal year 2019 grew 28% to $ 2.9 billion, and its profits grew more than 36%. Analysts expect earnings to grow 25 percent a year over the next five years.
PANW shares trade at multiples greater than 29, indicating that the shares are reasonably priced and expected to rise. In June, we identified the stock of PANW as attractive and maintain it in light of its strong results in 2019. The recent acquisition of Zingbox is unlikely to erode PANW's $ 3 billion cash position.
Analysts monitoring Palo Alto Networks have an average price target of $ 263 over 12 months, which indicates a potential upside of 30% over the current price.
Market Realist analyst Aditya Raghunath holds no position on Palo Alto Networks shares
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