Guggenheim Lifts Palo Alto Networks (PANW) Rating Following Deal Activity and AI Tailwinds

Palo Alto Networks, Inc. (NASDAQ:PANW) is one of the AI Stocks Making Waves on Wall Street. On January 4, Guggenheim analyst John DiFucci upgraded the stock from Sell to “Neutral,” noting that the stock’s underperformance, recent deal activity, and industry leadership in Free Cash Flow margins have reset valuation and improved PANW’s risk-reward profile.

“We are upgrading the shares of Palo Alto Networks to Neutral from Sell, as the stock has significantly underperformed the major indices, the company announced two acquisitions, at least one of which we see as a positive move, and reiterated best in class FCF margins through FY28. We simply believe it will be more difficult to make money shorting PANW at this time.”

Since January 2025, Palo Alto has underperformed the S&P 500 by 1,753 basis points and the NASDAQ by 2,054 basis points since early January 2025. It has also underperformed the Security ETF (HACK) by 732 bps, and the IGV by 325 bps, while outperforming another Security ETF (BUG by 632 bps) over the same period.

The firm believes that PANW’s recent acquisitions, at least one of which is deemed positive, along with its commitment to maintain best-in-class free cash flow margins through fiscal year 2028, diminishes the case for shorting the stock.

The company is also poised to benefit from its position as the largest pure-play vendor in the Security space, a category it views as somewhat insulated, and potentially even boosted, by rising AI-related threats. PANW also has the best FCF margins in the Software sector, noted the analysts, which may likely persist for at least the next three years.

Palo Alto has also experienced a recent reversal in operational performance, with analysts noting that while it had been among the worst performers in their coverage universe over the past two years as measured by Total New ARR growth, the trend has been improving.

“On the flip side, it has been one of the worst operationally performing stocks in our coverage universe over the last two years (as measured by Total New ARR growth), though that has reversed recently (against very easy comps) and we think this positive trend will continue, which should help future revenue growth.”

Palo Alto Networks, Inc. (NASDAQ:PANW) is a leader in AI-powered cybersecurity.

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