Palo Alto Networks stock split: Will reduced PANW share price spur even more future growth?
Investors in Palo Alto Networks (PANW), the US-based cybersecurity firm, have endured a disappointing few weeks since the completion of its three-for-one stock split.
PANW has slipped almost 15% from 182.06 in mid-September to $159.12, as of 14 October 2022.
Live PANW stock price chart
But what does this mean for the company and its investors? Is it a temporary blip or are there deeper-rooted concerns that cast a cloud over its future?
In our Palo Alto Networks stock split analysis, we examine the reasons behind the stock split, analyse the company’s recent results, and reveal what analysts believe will happen.
What is a stock split?
Stock splits occur when companies choose to divide their existing high-value shares into a larger number with a lower value. Management can do this for a variety of reasons – often, it’s to make the stock more affordable for a wider number of individual investors as the price of each share will be less than before the split.
The move can also be made for more simplified accountancy reasons. For example, management might want to reward junior members of staff with stock options. If each share is priced very highly, this can be hard to do.
A high share price can cause other problems. For example, it can make mergers and acquisitions more difficult to complete.
For existing investors in a company, stock splits won’t change the value of their holdings. It will just mean they own a larger number of shares.
Whether or not stock splits affect the price, however, is unclear. There is a school of thought that making them more accessible increases demand, giving the stock price a lift.
What is your sentiment on PANW?
What is Palo Alto Networks?
Palo Alto, which is based in Santa Clara, California, was founded in 2005. It sells security appliances, subscriptions and support to enterprises, government entities and service providers.
Its product range includes firewall appliances, virtual firewalls, endpoint protection, cloud security and cybersecurity analytics.
Palo Alto Networks is listed on the Nasdaq Stock Exchange under the ticker symbol PANW. The company went public on 19 July 2012, with shares opening at $42 each on the first day of trading.
The company currently (14 October) has a market capitalisation of $48.32bn, according to CompaniesMarketCap, which makes it the largest security company in the world.
Recently, it was named by Newsweek in its list of America’s 100 most loved places to work.
The publication said the company gives employees a lot of choice, “from the ability to determine their own career paths to taking advantage of continuing education opportunities”, plus regular roundtables with the chief executive.
Palo Alto Networks stock split news: Why did it happen?
The company completed a three-for-one stock split on 14 September 2022, in order to make the shares more accessible to investors and employees.
Prior to the Palo Alto Networks share split, the stock was trading at $570. The post-split price stood at $159.12, as of 14 October 2022.
At the time, Palo Alto acknowledged the reason for the split was that its stock price “had increased significantly” since its initial public offering in 2012.
In a statement, it said:
“The stock split will enable employees to acquire more whole shares of our stock through equity awards and more easily participate in our employee stock purchase plan. In addition, the stock split may make our stock more accessible to a broader base of investors.”
Palo Alto isn’t the only company in its sector to initiate a stock split. Fortinet (FTNT), the world’s second-largest IT security firm by market cap, went down this route in June 2022.
The firm announced a five-for-one split. It was the second split carried out by the company, which had implemented a two-for-one split back in 2011.
Financial results boost PANW
In late August 2022, the company reported that fiscal fourth-quarter revenue had grown 27% year-over-year to $1.6bn, with Q4 billings up 44% to $2.7bn.
Nikesh Arora, chairman and CEO of Palo Alto Networks, said he was pleased by the fourth quarter results, which included GAAP profitability for the first time in four years.
He noted how “next-generation security growth”, driven by the company’s “rapid pace of innovation and strong sales execution”, were behind the figures.
“As cybersecurity posture remains critical, our integrated three-platform strategy continues to drive large deal momentum as we consolidate and simplify our customers’ security architectures,” he said.
Looking ahead, the company said it expected total billings in the range of $1.68bn to $1.70bn in the fiscal first quarter of 2023, which would represent year-over-year growth of 23% to 25%.
For fiscal year 2023, meanwhile, it predicted total billings to be in the range of $8.95bn to $9.05bn. This would represent year-over-year growth of up to 21%.
In addition, total revenue could be in the range of $6.85bn to $6.90bn. This would represent year-over-year growth of 25%.
Where will the stock price go next?
The stock is classed as a ‘moderate buy’, according to 34 analysts’ ratings compiled by MarketBeat. All bar four analysts have ‘buy’ recommendations in place.
The consensus view is the stock could rise to $219.13, which would represent a potential upside of 41.09%. The highest prediction is $274.33, while the lowest is $165.
The opinions of 29 Wall Street analysts collated by TipRanks illustrate an even higher degree of optimism, with the consensus view being that the stock could reach a potential target price of $229.03.
The site noted that the stock was rated a ‘strong buy’, with 27 analysts having ‘buy’ recommendations in place and two a ‘hold’.
Palo Alto Networks is a “very good long-term (one year) investment”, according to the algorithmic forecasts of Wallet Investor.
It predicts the stock could rise 38% to $214.77 over the coming year, while its five year forecast sees the company reaching $418.72. This is almost 170% higher than the current (14 October) level.
What do analysts think?
Malik Ahmed Khan, an analyst at Morningstar, believes Palo Alto is “financially stable” and should generate strong cash flow as it expands its operating margin profile.
“The company has historically operated at a loss (excluding fiscal 2012), and we expect it to turn profitable by fiscal 2023 on a GAAP basis,” he wrote.
Khan also believes the company will “continue to outpace its security peers” by focusing on providing solutions in areas such as cloud security and automation, noting:
He also predicted that the company will be on the lookout for ways to expand:
More broadly, Khan said he expected a 20% five-year revenue compound annual growth rate (CAGR), driven by subscriptions and support outpacing product growth.
“We anticipate that Palo Alto's expansion into cybersecurity areas with higher growth trajectories than firewall appliances will increase stand-alone and product-attached subscription revenue,” he said.
In a bull case, Khan’s fair value estimate on the stock is $259 per share. In such a scenario he would expect elevated demand for firewall appliances.
At the other end of the scale, his bear case would put the stock at $110 a share.
“Although we expect Palo Alto to remain a leader in firewall products, its total addressable market could be smaller because of customers choosing the public cloud vendors’ cybersecurity offerings instead of Palo Alto’s holistic approach,” he added.
The bottom line
While news of a recent stock split may provide valuable insight into the performance of a company, it should never be used as a substitute for your own research.
You should do your own research to develop an informed view of the market. Look at the latest news, technical analysis, and analyst commentary before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.
FAQs
When did Palo Alto Networks stock split?
The Palo Alto Networks stock split date was 14 September 2022. The three-for-one split meant that for each share of PANW owned before the split, a shareholder would own three shares. This is the first time the company has split its stock.
Why did Palo Alto Networks stock split?
Palo Alto Networks split its stock to make it more accessible to employees and investors as the price has risen significantly since its initial public offering in 2012. The split will also enable employees to participate more easily in its stock purchase plan.
Is PANW a buy?
The stock is classed as a ‘moderate buy’, according to 34 analyst ratings compiled by MarketBeat. The consensus view is the stock could rise to a potential target price of $219.13, which would represent a potential upside of 41.80%.
Remember that analysts and algorithm-based forecast websites can be wrong in their projects. Always do your own research before making an investment decision. And never invest or trade more than you can afford to lose.
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