Palo Alto Networks Stock Is a Rare Decliner Today. Why It’s a Buying Opportunity.

Palo Alto Networks topped earnings expectations, but that wasn’t enough to wow investors. (David Paul Morris/Bloomberg)

Key Points

• Palo Alto Networks’ stock fell despite exceeding first-quarter earnings forecasts and announcing a significant acquisition.
• The company reported adjusted net income of 93 cents per share and revenue of $2.47 billion, a 16% increase year-over-year.
• Palo Alto Networks agreed to acquire Chronosphere, an observability tools cybersecurity company, for $3.35 billion.

Palo Alto Networks stock was lower on Thursday, but that could be a buying opportunity for investors, according to one analyst.

Shares in the cybersecurity company fell 2.5% to $195.00 in morning trading. The S&P 500 was 1.8% higher as Nvidia solid guidance eased fears about an artificial intelligence bubble.

Palo Alto Networks topped analysts’ earnings forecasts and announced a splashy deal late Wednesday, but that evidently wasn’t enough to wow investors.

The company reported adjusted net income for its fiscal first quarter of 93 cents a share, as revenue climbed 16% from a year ago to $2.47 billion. Analysts were expecting net income of 89 cents a share on revenue of $2.46 billion.

Palo Alto Networks’ revenue guidance was in line with estimates, and it also announced it had agreed to purchase Chronosphere, a cybersecurity company focused on observability tools, for $3.35 billion.

Shareholders should be pleased with the deal, as it will make it easier for Palo Alto Networks to detect cyberattacks in advance, Evercore ISI analyst Peter Levine said. He has a Buy rating on the stock with a $250 price target.

“We would be buyers on any pullback,” he added. “Palo Alto Networks’ long-term fundamentals remain strong, and we see the company as a durable compounder driven by steady execution, accelerating platform adoption, and strengthening mind share across the enterprise.”

Levine isn’t the only analyst who is bullish on shares. Of the 56 analysts covering Palo Alto Networks, 42 of them have a Buy rating, according to FactSet, with an average target price of just over $226. That implies shares can rise 13% from their level as of Wednesday’s close.

Write to George Glover at george.glover@dowjones.com