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Palo Alto Networks Inc (PANW) Is Set to Dominate the Cybersecurity Space

Check Point Software Technologies Ltd. (NASDAQ:CHKP) and Palo Alto Networks Inc (NYSE:PANW) may have their fortunes reversed according to a note from Bernstein Research.

PANW Is Set to Dominate the Cybersecurity Space OVer CHKP

While CHKP stock is currently in the black for the year, PANW stock has suffered setback after setback, shedding 24% since the start of 2016. Bernstein Senior Analyst Pierre Ferragu, however, expects one of the two cybersecurity companies to fare better than the other.

Palo Alto, says Ferragu, will post earnings above guidance, while Check Point’s earnings should come somewhere in the mid-range.

Expectations for PANW vs CHKP

According to Ferragu, PANW issued modest guidance due to the “volatile macroeconomic environment.” Bernstein estimates revenues of $391.2 million, well above the consensus for $389.4 million. And while firm expects PANW revenues and earnings to come in slightly under seasonality, Palo Alto’s long-term outlook leaves the research firm “relaxed”:

“Palo Alto only owns ~8% of the installed base, though it captures half of revenue growth in the market. This signals a competitive edge in products, which, perceived or real, appears sustainable. We expect Palo Alto to more than double revenues in three years and quintuple earnings, as its very profitable subscription business model reaches maturity.”

As for CHKP stock, Ferragu calls for “slightly below consensus” revenues and earnings. Bernstein’s $417 million sales estimate, indeed, is much lower than the consensus for $422 million.

Bernstein attributes its dismal view on CHKP stock to the company’s opex growth outpacing sales and billings, a sign of deteriorating productivity. What’s more, Bernstein notes that Check Point previously issued “cautious commentary” surrounding its IT spending and subscription revenue impact:

“Combined with the continued deterioration of productivity, this may reflect the beginning of a loss of commercial momentum, as recently discussed. We expect to gain more visibility on this coming quarter.”

Bernstein has slapped CHKP with an “underperform” rating and $65 price target, concluding that “Check Point is the most at risk platform in the race,” as its unpromising earnings can’t sustain its lofty valuation.

The firm rates PANW stock as “outperform” with a $200 price target, calling it the “most likely winner of the infrastructure security race.” Keep an eye on both stocks leading into and following earnings, as both CHKP and PANW stock are trading around crucial levels of resistance/support that could send them either flying or hitting the pavement.

As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.

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