NEW YORK (TheStreet) -- With cyber threats on the rise, security software maker Palo Alto Networks (PANW - Get Report) has staked its reputation on corporate data threat prevention. The company delivered fiscal second-quarter revenue and earnings that exceeded Wall Street estimates Monday so Palo Alto's competitors should be worried.
With fiscal second-quarter revenue surging 53% year over year to $217 million, beating estimates by almost $14 million, Palo Alto's products are developing a larger consumer install base. This is important for several reasons. Not the least of which involves the expected surge in spending security spending by large corporations in 2016, according to research firm IDC.
PANW data by YCharts
Palo Alto's services revenue topped last year's mark by 29%, buoyed by its WildFire subscription services.
All told, 47% of net revenue was generated from recurring services, leading to billings growth that beat exceeded last year's mark by 51%. The billings metric indicates how sticky Palo Alto's products and services have gotten.
Palo Alto's business outlook calls for revenue growth in the rage of 45% to 48%. This is not just a revenue machine, however. Palo Alto, which beat its second-quarter earnings estimates by 2 cents, also knows how to make money.
The company projects fiscal third-quarter earnings to be in the range of 19 cents to 20 cents, higher than consensus estimates of 19 cents. Given the higher rate of revenue growth the company projects, its earnings range is likely conservative, especially since Palo Alto just beat fiscal second-quarter earnings by 2 cents.
Tuesday, the company was rewarded with several price target increases, including $160 target by analysts Rob Owens at Pacific Crest Securities. This implies 10% gains from current levels. Owen's cited Palo Alto's better-than-expected improvements in profit margins, which he says are ramping up.
Brent Thill, analysts at UBS upped his price target from $143 per share to $162, suggesting 11% gains.
Palo Alto shares, which are up almost 22% year to date, reached a new 52-week high Tuesday at $149.35 and closed at $148.90.
Not only does the stock now have a consensus buy rating, analysts expect the Santa Clara, CA.-based company to grow earnings at an annual rate of 43% in the next five years. That's 10 percentage points faster than FireEye (FEYE).
Working in its favor, Palo Alto sells proprietary hardware and software architecture that helps it protect large applications running on corporate networks. Its next-generation security technology includes web filtering and application control features designed to prevent hackers from accessing computers and launching things like denial of service attacks, which renders website inoperable.
That coupled with research firm IDC predicting the data security market to grow in the next several years, investors should be encouraged that market has already made up its mind, saying Palo Alto is here to stay.
Moreover, it is likely that the stock will continue to climb.
By Richard Saintvilus
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