Earnings Previews: Palo Alto Networks, Zoom Video

The three major U.S. equity indexes closed higher on Thursday. The Dow Jones industrials added 0.06%, while the S&P 500 rose by 0.23%, and the Nasdaq closed up 0.21%. Seven of 11 sectors ended the day higher, led by energy (up 2.7%). Real estate lagged (down 0.7%). Claims for jobless benefits were essentially flat week over week, as were continuing claims. The day’s big mover was Bed Bath & Beyond, falling nearly 20%, and by twice that amount in Friday’s premarket, after investor Ryan Cohen dumped all his stock in the company. All three indexes traded lower Friday morning.

After markets closed on Thursday, Applied Materials reported better-than-expected earnings per share (EPS) and revenue. Guidance was in line with consensus estimates. Shares traded down about 0.2% Friday morning.

Ross Stores beat the consensus EPS estimate and missed on revenue. The discount retailer guided earnings for the second half of the year lower, and the stock traded down about 1% Friday.

Before U.S. markets opened on Friday, Deere badly missed the consensus EPS estimate but surpassed revenue expectations. Shares traded down about 5.4% early Friday.

Foot Locker beat the EPS estimate and barely missed on revenue. New CEO Mary Dillon takes over on September 1. The stock traded up by around 20% Friday morning.

There are no notable earnings reports out either after markets close Friday or before they open on Monday. Here is a look at what to expect from two companies set to report quarterly results after Monday’s close.

Palo Alto Networks

Palo Alto Networks Inc. (NYSE: PANW) supplies cybersecurity platforms, including both hardware and software, along with subscription security and other professional services. Over the past 12 months, the share price has increased by nearly 42% thanks to a big run-up that ended in mid-April when the shares reached an all-time high in mid-April. Since then, the shares are down about 17.3%, although they have bounced back from a drop of around 30% in mid-May. For the year to date, the stock is down 7%, better than the tech sector’s 10% drop so far this year and the software industry’s 16% tumble.

Analysts remain strongly bullish on the stock, with 35 of 37 brokerages having a Buy or Strong Buy rating. At a recent share price of around $517.90, the stock’s upside potential based on a median price target of $610.00 is 17.8%. At the high price target of $823.00, the upside potential is 58.9%.

For its fourth quarter of fiscal 2022, Palo Alto Networks is expected to report revenue of $1.54 billion, which would be up 3.2% sequentially and by 26.2% year over year. Adjusted EPS are forecast at $2.28, up 27.2% sequentially and 42.5% higher year over year. For the full fiscal year that ended in July, analysts are looking for EPS of $7.46, up 21.4%, and revenue of $5.51 billion, up 29.5%.

Palo Alto Networks stock trades at 69.5 times expected 2022 EPS, 55.8 times estimated 2023 earnings of $9.29 and 45.3 times estimated 2024 earnings of $11.42 per share. The stock’s 52-week range is $358.37 to $640.90, and Palo Alto Networks does not pay a dividend. Total shareholder return for the past 12 months was 42.9%.

Zoom Video

Over the past 12 months, shares of Zoom Video Communications Inc. (NASDAQ: ZM) have dropped by about 69.7%. The stock reached its 52-week high in late August of last year, and the shares sank more or less steadily to a 52-week low in mid-May. Since then, the stock has added more than 21%. The main threat facing the video conferencing company faces is its biggest rival, Microsoft’s Teams. Also, as the effects of the pandemic wane, demand for collaboration software is also receding.

Analysts are showing mixed sentiment on the stock, with 16 Hold ratings, eight Buy ratings and four Strong Buy ratings from a total of 29 brokerages covering the company. At a share price of around $103.20, the upside potential based on a median price target of $122.00 is 18.2%. At the high price target of $190.00, the upside potential is 86.8%.

Fiscal second-quarter revenue is forecast at $1.12 billion, up 4% sequentially and 9.8% higher year over year. Adjusted EPS are pegged at $0.93, down 32.1% sequentially and by 31.6% year over year. For the full 2023 fiscal year ending in January, current estimates call for EPS of $3.82, down 24.6%, on sales of $4.54 billion, up 10.7%.

The stock trades at 27.0 times expected 2023 EPS, 25.1 times estimated 2024 earnings of $4.12 and 23.9 times estimated 2025 earnings of $4.32 per share. The stock’s 52-week range is $79.03 to $357.93. The company does not pay a dividend, and the total shareholder return for the past year is negative 69.7%.

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