Sourcefire, Inc. (FIRE), Cisco Systems, Inc. (CSCO): Will Palo Alto Networks Inc (PANW) Earnings Really Double This Quarter?

Palo Alto Networks Inc (NYSE:PANW) will release its quarterly report on Monday, and investors aren’t certain whether the company will produce the results they want to see. Even though projections are for adjusted Palo Alto earnings to double from year-ago levels, the stock’s hefty valuation needs even more earnings growth to justify its lofty share price.

Palo Alto Networks Inc (NYSE:PANW)

Palo Alto Networks Inc (NYSE:PANW)’s focus is on making sure that data flowing through the cloud remains secure. Given the huge volumes of information that get transmitted through the Internet constantly, the company’s business model doesn’t appear to be in any danger of becoming obsolete anytime soon. Let’s take an early look at what’s been happening with Palo Alto Networks Inc (NYSE:PANW) over the past quarter and what we’re likely to see in its report.

Stats on Palo Alto Networks

Analyst EPS Estimate $0.06
Change From Year-Ago EPS 100%
Revenue Estimate $108.98 million
Change From Year-Ago Revenue 44%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

How will Palo Alto earnings fare this quarter?
Analysts haven’t budged in recent months on their views for Palo Alto Networks Inc (NYSE:PANW) earnings, keeping both their July quarter and full fiscal year projections unchanged. The stock, though, continues to reflect concerns about the pace of the company’s growth, posting flat returns since early June and failing to recover from substantial losses during the second quarter of 2013.

Palo Alto did little to assuage those concerns in its April-quarter report, as the stock plunged 10% when the company released its most recent figures. Even a 54% jump in revenue wasn’t enough to satisfy growth investors, and the inability of the company to earn a profit on a GAAP basis weighed on sentiment. Moreover, with guidance for the July quarter that fell short of what investors had hoped to see, Palo Alto hasn’t done as good a job of converting sales to profits as shareholders want.

One big challenge Palo Alto Networks Inc (NYSE:PANW) faces is strengthening competition. Last month, the company announced a program designed to help current users of Sourcefire, Inc. (NASDAQ:FIRE)‘s security products switch to Palo Alto’s platform, offering free switching gear and even credits to apply against money they’ve invested in Sourcefire, Inc. (NASDAQ:FIRE) maintenance. Yet with Sourcefire’s merger with Cisco Systems, Inc. (NASDAQ:CSCO) having gotten through its antitrust waiting period without a hitch, a combined Cisco-Sourcefire entity will have even more resources to fight against Palo Alto’s competitive efforts.

Still, competition has motivated Palo Alto to work hard to gain attention for its products. Fortinet Inc (NASDAQ:FTNT) noted on its conference call that Palo Alto spends considerable amounts of money on marketing. Even though Fortinet Inc (NASDAQ:FTNT) recovered from a weak first-quarter with greatly improved second-quarter results, it will have to work hard to thwart Palo Alto’s attempts to prevent Fortinet Inc (NASDAQ:FTNT) from regaining market share at Palo Alto’s expense.

In the Palo Alto Networks Inc (NYSE:PANW) earnings report, watch to see whether the company emphasizes lower-priced offerings for smaller customers or instead aims at higher-end customers with more extensive security needs. The strategic decisions that Palo Alto makes now will have a huge impact on whether it can succeed against the rapidly evolving competition.

The article Will Palo Alto Earnings Really Double This Quarter? originally appeared on and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cisco Systems.

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