The Institutions Drive Volatility For Palo Alto Networks
Insiders have been selling Palo Alto Networks (NASDAQ: PANW) on a regular basis but it is nothing for shareholders to be worried about. The sales are small, periodic, incredibly regular, and spread among a wide range of execs and board members so are consistent with share-based compensation and not a red flag the company is failing. More importantly, insider holdings have been holding fairly steady at just over 2.0% and the institutions are major holders too.
The institutions hold about 86.25% of the stock and their activity has been heating up over the past few quarters. The takeaway here is that the institutions have been net sellers of the stock and yet share prices are still trending higher. In our view, selling smacks of profit-taking and rotation because the stock is up more than 300% since hitting its pandemic bottom. Based on the outlook and the analysts we see that trend continuing and it may be amplified by the institutions. The institutional activity so far in the first two weeks of Q2 has been very light and net-bullish. If the institutions simply stop selling it will remove a headwind for price action, if they start adding to their holdings the headwind turns into a tailwind.
The Analysts Are Driving Palo Alto Networks Higher
Palo Alto Networks is rising on a tide of good news that includes results and the analyst's expectations. The company has 32 current ratings and is attracting new analysts on a semi-regular basis. They rate the stock a firm Buy and that has held steady over the past year. The Insidertrades.com consensus estimate for the share price is $625, however, and assumes the stock is fairly valued at current levels, but it has been trending higher in the 12-month, 3-month, and 1-month period and is up 2% in the last month alone.
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The latest two analyst commentaries came out in the first week of April 2022 and include a price target increase from Bank of America and a suggestion for investors to “aggressively buy” software and cyber security stocks like this one. Bank of America is more focused on the cloud side of the business and the transition to cloud services which we view as fundamental to the company’s success. Bank of America has a Buy rating on the stock while Wedbush has a higher Overweight rating.
The analysts are expecting Palo Alto Networks to report growth in Q4 when it reports on May 20th but we think they are underestimating tailwinds that are growing in the cybersecurity space. The Russian invasion of Ukraine and the threat of Russian cyberattacks spurred a new wave of business for the industry that we don’t think will subside. The analyst's consensus is for a modest 3% gain sequentially and for YOY growth to slow to 27%. In our view, YOY growth will be flat to slightly higher and drive outsized performance on the bottom line as well.
The Technical Outlook: Palo Alto Networks Is Trending Higher
Palo Alto Networks is trending higher despite the volatility induced by the institutions. Price action has recovered nicely from that correction and is now firing off the second of two consecutive Rising Methods continuation patterns. This pattern reveals a change in sentiment within the market as it prepares to scale a new high. Assuming the market follows through on the signal, we see shares of Palo Alto Networks moving up toward the current high price target of $720 for a gain of 15% or more.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Palo Alto Networks (PANW)||$508.25||+2.9%||N/A||-127.70||Buy||$628.56|