TLDR
- Palo Alto Networks (PANW) shares slid 6% pre-market Wednesday after cutting its 2026 adjusted EPS outlook to $3.65–$3.70, from $3.80–$3.90.
- Acquisition integration costs — primarily from CyberArk and Chronosphere — are compressing margins.
- Annual revenue guidance was raised to $11.28–$11.31 billion, up from $10.50–$10.54 billion.
- Q2 results beat expectations: next-gen security ARR up 33%, RPO up 23%.
- Analyst consensus remains a Strong Buy at 1.71; TD Cowen sees 56% upside from current levels.
Palo Alto Networks shares took a hit Wednesday, falling 6% in pre-market after dropping 7% in after-hours Tuesday — a two-session slide driven entirely by a cut to the company’s 2026 profit forecast.
Palo Alto Networks, Inc., PANW
Adjusted EPS guidance came down to $3.65–$3.70 for fiscal 2026, from a prior range of $3.80–$3.90. The company did raise its revenue outlook to $11.28–$11.31 billion, well above the earlier estimate of $10.50–$10.54 billion — but the market focused squarely on the earnings cut.
The disconnect between rising revenue and falling profit expectations comes down to one thing: the cost of buying and integrating new businesses.
The Acquisition Bill Is Coming Due
Palo Alto completed its CyberArk purchase in early February, with $2.3 billion hitting Q3 alone. It also struck a $3.35 billion deal to acquire Chronosphere, a cloud monitoring firm, and picked up Israeli cybersecurity startup Koi.
The goal is to build a fully integrated platform covering identity, cloud, and AI-driven threat detection — a one-stop shop as enterprise customers look to cut the number of security vendors they deal with.
Morningstar analyst Malik Ahmed Khan sees the logic. “The profitability cut is mostly due to the firm’s acquisitions and we see the firm being able to leverage these acquisitions by cross-selling its existing customer base,” he said.
CyberArk and Chronosphere are both included in free cash flow margin targets of 37% for fiscal 2026 and 2027, rising to 40% in fiscal 2028.
Strong Underlying Business
Strip out the acquisition noise and the Q2 numbers hold up well. Next-gen security annual recurring revenue grew 33% and remaining performance obligations rose 23%. The company generated $3.69 billion in levered free cash flow over the past twelve months and reaffirmed its full-year free cash flow targets.
Analysts Stay Bullish
TD Cowen kept its Buy rating and $255 price target after the results, representing 56% upside from around $163.50. The firm noted that AI remains a key growth driver and that demand across the business stayed healthy.
Piper Sandler held its Overweight rating with a $265 target. Truist Securities reiterated Buy at $200. BMO Capital maintained Outperform at $200, projecting 13–15% organic growth in next-gen security revenue over the next two quarters.
Not everyone was upbeat. Needham cut its target to $200 from $230 and Scotiabank trimmed to $180 from $228, both pointing to rising complexity and limited near-term organic momentum — though neither downgraded the stock.
Overall analyst consensus stands at 1.71, a Strong Buy, with the $255 TD Cowen target sitting at the high end of the range.
