What Happened:
Shares of cybersecurity provider Palo Alto Networks (NASDAQ:PANW) fell 6.91% in the morning session after competitor, Fortinet, reported disappointing second-quarter earnings results. Key topline metrics, including revenue and billings, missed Wall Street's estimates. In addition, the company lowered full-year revenue guidance. Fortinet guided full year revenue to fall within a range of $5.35B to $5.45B, down from a prior view of $5.43B to $5.49B.
Following the result, TD Cowen analyst downgraded Fortinet's stock rating from Outperform (Buy) to Market Perform (Hold) and lowered the target price from $90 to $70.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Palo Alto Networks? Access our full analysis report here, it's free.
What is the market telling us:
Palo Alto Networks's shares are not very volatile than the market average and over the last year have had only 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move was 23 days ago, when the company dropped 7.25% on the news that competitor, Microsoft, introduced new products that could challenge its network and cloud security offerings. The products, called Microsoft Entra Internet Access and Microsoft Entra Private Access, are still in testing and have no pricing details yet. However, analysts said they could boost Microsoft's security business. Hamza Fodderwala of Morgan Stanley added that "This is potentially the largest and last major cybersecurity market that Microsoft has yet to enter and it is now competing with cloud network security providers, mainly ZS, NET, PANW."
Although the details of the products are still murky, what is clear is that Microsoft has a massive install base of Office, Azure, server, and Dynamics customers into which they can easily cross-sell new products and take share from incumbents.
Palo Alto Networks is up 57.4% since the beginning of the year, but at $217.53 per share it is still trading 15.6% below its 52-week high of $257.88 from July 2023. Investors who bought $1,000 worth of Palo Alto Networks's shares 5 years ago would now be looking at an investment worth $3,090.
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