Cybersecurity company Palo Alto Networks (NYSE:PANW) is one of those stocks that stands to benefit from the increased popularity of working from home as a result of the coronavirus pandemic. Companies like Zoom Video Communications (NASDAQ:ZM) have been making headlines because of huge usage spikes. However, in order for employees to remotely access corporate networks, systems and data, they must be provided with security. That’s where Palo Alto comes in. It provides solutions, including firewalls and VPNs, that support secure remote access. That focus is expected to pay off for PANW stock in the coming months.
Q2 Earnings + the Market Selloff Were a One-Two Punch for Palo Alto Stock
At the end of February, Palo Alto reported second-quarter earnings that disappointed the market. Its revenue sank 15% year-over-year, and the $816.7 million of sales the company reported missed the $843 million that analysts, on average, had been expecting. Worse, its Q2 earnings per share fell 21% YOY. Add in lower-than-expected Q3 guidance and reduced full-year projections, and the stage was set for Palo Alto to feel some pain.
The company’s stock dropped 17% the following day. Then, the coronavirus pandemic and an oil-price war resulted in March’s historic market selloff. By the time the worst was over, PANW stock had dropped 44% in three weeks.
The tumble has created a good buying opportunity for those who have been eyeing PANW stock.
The Coronavirus and Working From Home
As the coronavirus situation began to worsen in the U.S., companies sent employees to work from home whenever possible. That began a cascade of technical issues.
The number of users of group collaboration and video conferencing software has spiked tremendously. That — combined with bored, housebound people looking for entertainment — has led video streaming services like Netflix (NASDAQ:NFLX) to offer lower video quality in an effort to reduce internet bandwidth use.
Working from home also raises security concerns. That’s where companies like Palo Alto Networks stand to gain, with solutions including firewalls and VPNs. Lori Baker-Eveleth, professor of management information systems at the University of Idaho, explains why a VPN is critical:
“The user opens VPN software, puts in their username/password and a virtual ‘tunnel’ is created to access data or application software on the company-side. It’s a more secure mechanism to access the business than Wi-Fi, be it an open connection at Starbucks or your home. Those connections are able to be hacked and someone could capture your data… Having a robust network infrastructure with strong security measures allows companies to adapt and continue work as issues like Coronavirus arise.”
Preparation for the Next Time
Palo Alto Networks will likely gain customers in the short-term, as corporate IT departments work to ensure security measures are in place for remote employees.
This trend is liable to result in long-term opportunities for the cybersecurity company as well. With so many people working from home, there’s a possibility that more companies will offer the option on a permanent basis. Even if the working world returns to business as usual after the coronavirus crisis is over, companies will be taking measures to ensure they are better prepared the next time. Either way, enhancing cybersecurity to protect remote workers from attack will be a priority for many IT departments. That will create opportunities for Palo Alto Networks.
The Bottom Line on PANW Stock
Palo Alto Networks’ shares may have taken a beating over the past month, but investment analysts are upbeat about its potential.
Among the analysts polled by CNN Business, the average rating on Palo Alto remains a “buy.” Analysts’ $216 median 12-month price target is around 30% above the stock’s current price. InvestorPlace contributor Luke Lango has PANW stock on his list of cybersecurity stocks to buy for those seeking long-term gains.
The coronavirus has stomped on most stocks, and Palo Alto is no exception. But Palo Alto is one of the few companies that stand to benefit over the long term from this crisis.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.