Palo Alto Stock Leaps After Earnings. How Everything Came Up Roses.

Palo Alto plans to buy CyberArk Software, which would extend its portfolio of services into identity security. (David Paul Morris / Bloomberg)

Coming into Palo Alto Networks’ fiscal fourth-quarter earnings report, investors may have been concerned it would continue a trend of slight disappointments in tech profits being met with punishing selloffs. As it turned out, shareholders had nothing to worry about.

The security-software stock was up 6.6% in premarket trading following the release as the news appeared to help allay concern about a merger announced late last month.

Palo Alto beat Wall Street analyst expectations in all its major metrics in the fourth quarter, as well as in its guidance for the 2026 first quarter and fiscal year. Fourth-quarter revenue beat the consensus estimate by 1.4%, while adjusted earnings per share exceeded forecasts by 7.3%.

Its backlog of work stood at $15.8 billion, up 24% since the end of last fiscal year, and ahead of expectations by 3.6%.

While Palo Alto is a leader in security with $9.2 billion in sales in fiscal 2025, and $3.5 billion in free cash flow, a proposed acquisition is casting a shadow over the company. On July 30, Palo Alto announced its intent to buy CyberArk Software , which would extend its portfolio of services into identity security, where CyberArk is a leader.

While the fit between the two companies is solid, Palo Alto shareholders looked at the price of the merger and balked. Shares were down 10% in the two days after the announcement, and the price didn’t begin to recover until last week.

CyberArk shareholders will get $45 and 2.2005 Palo Alto shares for each of their shares, a 26% premium on the CyberArk share price before the merger announcement. This would represent a substantial new issuance of Palo Alto shares, reducing diluted per-share metrics by over 13%.

While the acquisition still hangs over Palo Alto, nothing works better to refocus attention on the core business like a successful quarter, with guidance for more to come.

Write to Adam Levine at adam.levine@barrons.com