Battleground: Analysts split on Palo Alto Networks ahead of earnings

Palo Alto Networks (PANW) is expected to report earnings today after market close. Commenting ahead of the release, Stifel analyst Gur Talpaz recently told investors that while sentiment on the name is mixed heading into earnings, his checks point to ongoing improvements in the company's business. Not as bullish, both Deutsche Bank and Piper Jaffray have recently expressed concern over demand. IMPROVEMENTS SEEN: In a note to investors published on November 14, Stifel's Talpaz noted he had conducted a series of checks with key Palo Alto Networks distributors and resellers. Despite broader firewall noise, his checks point to ongoing improvements in the company's business, including a large distributor noting October as its best Palo Alto month on record. The analyst added that while the firewall debate is ongoing, he is encouraged by his checks as well as what he perceives to be an achievable first quarter of 2018 bar in terms of expectations. Talpaz, who acknowledged that there has been "heavy speculation" regarding the company's ability to outperform its pure-play firewall peers, reiterated a Buy rating and $180 price target on the shares. 'DEPRESSED' DEMAND: More cautious, Piper Jaffray analyst Andrew Nowinski told investors in a research note of his own on November 10 that another round of channel checks with Palo Alto Networks resellers suggested market demand is "depressed," particularly from large enterprise customers. The analyst, however, does not believe this represents much of a change from third quarter to fourth quarter, and as such, is already factored into management's guidance. He also noted that the company faces easy comparisons for both product revenue and billings in the second and third quarters, suggesting guidance should be in line with Street expectations. Nowinski reiterated an Overweight rating and $155 price target on the shares. Meanwhile, Deutsche Bank analyst Gray Powell said last week that he is "incrementally more cautious" on Check Point (CHKP), Fortinet (FTNT) and Palo Alto after doing some field work in the network security space. The analyst pointed out that the consensus view of his reseller checks was that traditional firewall demand is "stable at best," and more likely weakening, supporting a view that a disappointing fourth quarter guide from Check Point and Fortinet may not be company-specific. Further, the comments raise the risk level for Palo Alto's upcoming results, he contended, adding that he does not see any significant signs of recovery in product revenue growth at the main network security vendors in the first half of 2018. Powell, who did note that the checks on Palo Alto were the most constructive of all the firewall vendors, kept a Hold rating on the stock. PRICE ACTION: In afternoon trading, shares of Palo Alto are fractionally up to $142.80. Over the last three months the stock has risen nearly 10%.