Goldman Sachs initiated coverage of Palo Alto Networks Inc (PANW) on Monday, giving it a “buy” rating and a $191 price target, 23% above Monday’s closing price of $154.90.
That’s all well and good, and sure, Goldman’s a household name, so the rating means something.
But another Wall Street research outfit, Bernstein, initiated coverage on PANW on March 10, and its take was far more interesting.
PANW Stock to $200: Bernstein
Bernstein initiated coverage on PANW stock, giving it an “Outperform” rating and a $200 price target, a 29% premium to yesterday’s closing price.
It also initiated coverage on cybersecurity rival Check Point Software Technologies Ltd. (CHKP), but wasn’t quite as kind. CHKP was given an “Underperform” rating and a price target of $65 per share. It closed yesterday at $83.25.
Here’s what Bernstein’s Pierre Ferragu and team have to say about PANW:
“Palo Alto is the most likely winner of the infrastructure security race. The company can sustain superior growth rates for several years and we see recent valuation levels as fully justified. We value Palo Alto’s Enterprise Value at 6.1x our 2020 sales estimate of ~$3.6bn. Using a discount rate of ~11% yields our target price of $200 at the end of 2016.”
Bernstein (rightly, I think) sees cybersecurity as a hot area unlikely to go away anytime soon, and it’s making a bold call that PANW is going to be one of the best stocks to buy in that area.
Much like the cloud, we’re at a point where there are a lot of companies specializing in this or that, and while a few early winners have been established — Amazon.com, Inc.’s (AMZN) Amazon Web Services in the cloud, for instance — it’s still an industry awaiting a firmer definition.
Bernstein has a vision for how the cybersecurity industry — and the companies with strong firewall products like PANW — will play out in the coming years:
“We see the market polarising between Cisco and Palo Alto, with the former the most credible ‘universal’ platform player and the latter combining the best product strategy and the best execution as a security pure play. We see Check Point remaining a relevant player in this evolution, but with pressure adding to its economic model over time.”
For Bernstein to put Palo Alto in the same league as Cisco — who at $140 billion in market cap is worth roughly 10 times PANW — is pretty lofty praise.
With Palo Alto Networks stock off to the tune of 11% this year, shareholders are hoping that Bernstein’s on to something — because if it is, a major rally is in order very shortly.
As of this writing, John Divine was long AMZN. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
