Palo Alto Networks (PANW, Financial) shares fell about 3% premarket on Thursday, despite delivering strong fiscal Q1 results. Analysts, however, largely retained their bullish outlook on the stock, emphasizing the company's solid performance and growth strategy.
Morgan Stanley reiterated its Overweight rating and $446 price target, with analysts led by Hamza Fodderwala highlighting Palo Alto's strong Remaining Performance Obligation (RPO), which grew more than 20% YOY exceeding consensus expectations. Current RPO (cRPO) also showed an improvement, accelerating to over 18% growth compared to 17% last quarter.
The company's guidance for Q2 RPO growth of 20% to 21% year-over-year also came in above expectations, signaling sustained demand for its offerings. Fodderwala noted that Palo Alto's platformization strategy is driving large deals, including transactions valued at over eight figures, with particular strength in next-generation and firewall products.
However, a 13% YOY decline in billings weighed on investor sentiment. The shift toward annual contracts, along with fewer multiyear deals being financed, pressured billings. Still, current billings rose more than 9% YOY.
Management maintained confidence in its financial outlook, citing higher EBIT and interest income to sustain free cash flow margins of 37% to 38%, even amid the shift in contract structure. Analysts remain optimistic about the company's long-term growth potential.
