Palo Alto Networks Gets Many Downgrades After Weak Earnings Report

Shares of cybersecurity company Palo Alto Networks were falling hard this week after the company posted disappointing earnings results.

On Tuesday the company saw its worst single day percentage drop in three years after posting its second quarter financial report and an earnings forecast cut. Revenue for the quarter fell 3.0% short of analyst estimates at $817 million. It also didn’t help that at least five analysts lowered their rating on the stock after the report according to FactSet.

“This print, highlighted by product growth of -9% and guidance for improving but still-sluggish growth in the next two quarters, was so bad that it seems highly unlikely to us that the firewall revs deceleration/recovery is all about internal sales incentives,” wrote Deutsche Bank analyst Karl Keirstead.

Keirstead downgraded the stock to hold from buy and wrote, “A slowdown of this magnitude now feels more like a network firewall hardware problem that is likely to persist throughout 2020.”

Raymond James analyst Michael Turits cut his rating on Palo Alto Networks shares to market perform from outperform.

Turits noted that this was the company’s third consecutive quarter of disappointing product revenue “further erodes confidence in Palo Alto’s ability to execute in what remains its core firewall appliance market.”

According to Turtis, the company has “strong overall positioning as the leading security platform vendor, strong firewall appliances, and in our view the leading portfolio of cloud security offerings,” but he has concerns over how fast the company can recover from its current challenges.

RBC Capital Markets analyst Matthew Hedberg lowered his rating from outperform to sector perform on the stock and said “the opportunity for additional execution risks.”

“While a new $1 billion [accelerated share repurchase] could help support the stock, outside of easy compares, we struggle to identify a material catalyst and therefore move to the sidelines as we expect the stock to remain rangebound,” he wrote.

Disclaimer: We have no position in Palo Alto Networks Inc. (NYSE: PANW) and have not been compensated for this article.