Investors of Palo Alto Networks Inc. (NASDAQ:PANW) are expressing caution as they anticipate the release of the cybersecurity company’s fiscal fourth-quarter results, an announcement that has raised eyebrows due to its unusual timing—scheduled for a Friday after the market closes. This timing, rarely seen among US corporations, has led to concerns about the inability to trade on the news over the weekend. While Nicole Hockin, a spokesperson for the company, attributed the timing to scheduling and logistical challenges, some investors perceive it as a potential warning sign.
Since the announcement of this schedule, the company’s stock has experienced a decline of 20%, compounded by a guidance reduction from its peer, Fortinet Inc. On the Friday of the announcement, the stock dropped by 2.4%, marking the fourth consecutive negative trading session. However, despite this setback, the stock has shown a remarkable 45% increase throughout the year, securing a position among the top 20 gainers in the Nasdaq 100 Index.
Michael Matousek, the head trader at U.S. Global Investors, noted the unusual timing, stating, “Releasing news on a Friday after the market close raises suspicions. If Palo Alto Networks anticipated a positive response, it would make more sense to release the news when it could create a greater impact and when traders are active at their desks.”
According to Bespoke Investment Group, there have only been two instances of S&P 500 companies unveiling results on Friday afternoons in the past decade: Nike Inc. in December 2020, and Anadarko Petroleum in July 2019, shortly before its acquisition by Occidental Petroleum Corp. (NYSE:OXY). An exception to this trend is Berkshire Hathaway Inc., led by Warren Buffett, which frequently reports on Saturdays.
While Nike’s stock saw an increase in value following its Friday announcement, Palo Alto Networks’ report carries a multitude of elements for investors to ponder. The report is expected to encompass a strategic review, along with new medium-term financial objectives. Additionally, the report precedes the company’s upcoming national sales meeting.
In light of these factors, Nicole Hockin of Palo Alto Networks explained in an email, “We aimed to ensure that our sell-side analysts had ample time to analyze the data and potentially engage in follow-up discussions.”
Adam Borg, an analyst at Stifel Nicolaus & Co., suggested that the timing indicates Palo Alto Networks intends to provide investors the weekend to process the news. Borg hypothesized that the news could pertain to executive changes or M&A-related developments, although he noted that a mixed report or outlook remains the most probable scenario.
Bloomberg-tracked analysts anticipate Palo Alto Networks’ fourth-quarter report to reflect an adjusted earnings growth exceeding 60% and a revenue growth of 26%. This consensus has remained unchanged over the past month, which encompasses both the timing announcement and Fortinet’s report release.
For the recently concluded fiscal year, the forecasted revenue growth is expected to decrease to 25% from the previous year’s 29%, with a further gradual decline projected over the subsequent two years. This comes as the company’s stock trades at 40 times the estimated earnings. While this represents a substantial discount compared to Palo Alto Networks’ 10-year average of 62 times, it still indicates a notable premium when compared to both the Nasdaq 100 and the cybersecurity index.
Despite the circumstances, Wall Street maintains a positive sentiment toward the stock. Nearly 90% of analysts recommend purchasing Palo Alto Networks shares, with the average price target indicating a 25% potential upside, as per Bloomberg’s compiled data. Nonetheless, Wedbush removed the stock from its best ideas list following Fortinet’s report, citing limited short-term potential for growth in the sector.
Considering this backdrop, the timing of Palo Alto Networks (NASDAQ:PANW) results announcement has not gone unnoticed. John DiFucci, a senior managing director at Guggenheim, highlighted, “Divergence from conventional management actions isn’t typically seen as a positive sign. Given the intricacies of Palo Alto Networks’ business model and occasionally opaque disclosures, certainty is hard to come by.”
Featured Image: Unsplash © Arif Riyanto
