(By Mani) Palo Alto Networks, Inc.
) is well positioned to record robust sales as its compelling next-generation firewall (NGFW) solution is expected to tap the multi-billion dollar market, potentially boosting the shares to $75.
The company, with an estimated $252 million in revenue in 2012, has industry-leading technology in the NGFW market, and has the opportunity to gain significant share in this market as the NGFW is expected to be around $4.8 billion (60 percent of the estimated $8 billion firewall market) in 2014, according to Gartner.
The company, which began trading on July 20, is in the midst of significant market opportunity as threats and attacks from hackers and others are growing in severity. High-profile attacks on targets like the PlayStation Network and botnet attacks like Conficker are spurring customers to protect themselves better than ever before.
Palo Alto's Single Pass Processing (SP3) software performs operations on a packet that does networking functions, policy lookup, application identification and decoding, while using signature matching to detect and block threats.
According to Gartner, less than 5 percent of Internet connections today are secured using NGFWs, but this will rise to 35 percent of the installed base and 60 percent of new purchases by 2014.
"In a recent round of channel checks, we were consistently hearing that PANW's products are selling quite briskly, and that PANW has a more integrated, elegant NGFW design than the competition," FBN Securities analyst Shebly Seyrafi wrote in a note to clients.
In December 2011, it had more than 40 customers who have each deployed over $1 million in equipment compared to 20 in August 2011, implying very strong growth. It has been cash flow positive for about two years and has over 7000 customers.
"Although we are modeling growth to moderate to 67% in F2013 from the current 111% level, we see upside to our already rather aggressive estimates," Seyrafi added.
California-based Palo Alto has "near-term" operating targets that result in a long-term operating margin target of 22-25 percent, but it should be able to obtain a long-term operating margin of over 30 percent. Rival, Fortinet (NASDAQ:FTNT), another fast-growing company in the security space, has a longterm operating margin target of 25 percent plus, while CheckPoint Software Technologies (NASDAQ:CHKP) has an operating margin of 59 percent.
The company is set to announce its fourth quarter results on Sept.10. Wall Street expects earnings of 3 cents a share on revenue of $74.41 million, according to analysts polled by Thomson Reuters.