Omer regev
21/12/2016
Our key takeaways supporting our positive stance include the following: 1) We see ample drivers for FY2H17 acceleration supported by installed-base subscription penetration, growing service provider footprint, ramp in sales force productivity, and refresh cycle opportunities; 2) We believe the extended F1Q17 sales cycles were driven by delays stemming from a growing number of standard evaluation processes as organizations purchase additional security solutions, which we view as a minor shift in dynamics rather than a sign of spending deceleration; 3) We believe PANW remains well positioned for cloud infrastructure migration considering its holistic cloud offerings (VM-Series) and integration with on-premise infrastructures in hybrid environments; 4) Early indications from VARs suggest the new-and-improved Traps version 3.4 is experiencing strong POC interest which could quickly transition into POs.
KEY POINTS
-
Drivers Intact: We currently view PANW shares as being in the penalty box near term; however, we believe F2H17 could position shares for improved performance driven by sales force productivity gains from new hires made over the past few quarters, as well as the potential subscription/product penetration of the company's growing installed base (~35,500 customers in F1Q17) and share gains.
-
Refresh Cycle: We believe PANW could benefit from an upcoming refresh cycle consisting of customers who purchased appliances in 2012-2014 (19K customers in FY14). Considering some unbundled subscriptions were not available during this period, we believe this refresh cycle could present an opportunity to upsell newer subscriptions such as Wildfire, Autofocus, Traps, Aperture, et al. as well as newer versions of appliances.
-
Sales Cycles: We believe the extended sales cycle (in F1Q17) is highly correlated with the growing complexity of IT architectures. As customers add security solutions, additional divisional scrutiny could be required per the specific product which at times stretches the standard approval process. We believe this delay is not a sign of a material demand shift, rather an adjustment to customer dynamics.
-
Service Provider Expansion: Over the past year, we believe PANW has made investments to expand its vertical footprint to include Service Providers—which also benefits its high-end ticket appliances such as the PA-7080 (we believe TCO of over $1M). We believe the elongated sale cycles associated with a typical Telco sale are baked into the current outlook.
-
Bottom Line: Both internal and external drivers are on the better side of PANW as investors await a return to prior execution levels with F2H17 in mind. We believe current valuation of 10.1x FY18E FCF is an attractive entry point. We reiterate our Outperform rating and PT of $184 based on a 6.8x EV/FY18E revenue and 15x EV/FY18E FCF.
Data, information, opinions and forecasts which are published in these site suppliers surfers. Not be seen as a recommendation or a substitute for the independent judgment of the reader, or an offer or investment marketing or investment advice in mutual funds, ETFs, provident funds, pension funds, education funds or any other security or Real estate- between general and considering the special circumstances and needs of each call - the purchase and / or investments and / or activities or transactions whatsoever. The information may contain errors and may apply at market changes and other changes. In addition there may be variances between the forecasts presented in this review actual result. Writer may be a personal interest in this article, including the possession and / or making a deal for himself and / or for other securities and / or other financial products referred to in this document. The author may be a conflict of interest. Funder does not undertake to inform readers in some way such changes in advance or In retrospect. Funder shall not be liable in any way loss or damage incurred from using article / interview, if any, and does not guarantee that the use of this information may generate profits by the user.
