By Nate Wolf

Shares of Palo Alto Networks were rising Tuesday after one Wall Street firm counseled investors to buy the cybersecurity stock -- a nice boost ahead of next week's earnings report.

Rob D. Owens of Piper Sandler upgraded Palo Alto stock to Overweight from Neutral and lifted his price target to $225 from $200 in a research note. The company's acquisition of CyberArk Software and its early success in getting customers to consolidate security solutions on its platform have Owens feeling bullish.

Palo Alto stock was rising 2.7% to $172.68 on Tuesday.

Investors needed some momentum, and perhaps a bit of reassurance, heading into the company's fiscal fourth-quarter earnings on Aug. 18. As of Monday's close, shares of Palo Alto had fallen 18% since July 28, the day before news first broke of the company's $25 billion deal to acquire CyberArk.

The acquisition wasn't a major factor in Piper Sandler's upgrade, but, unlike the market, the firm doesn't think it's an expensive albatross either.

CyberArk, a leader in the privileged access management category, has no meaningful product overlap with Palo Alto, Owens said. That means greater potential for accelerated cross-selling once the deal closes. The firm believes the acquisition could add to Palo Alto's per-share earnings and free cash flow by fiscal 2028.

"Though not central to our upgrade thesis, we are optimistic on the CYBR acquisition," Owens wrote, calling CyberArk "one of the highest quality assets in security."

Palo Alto's execution of its existing strategy -- not the high-profile acquisition -- was the main reason for Piper Sandler's upgrade.

Over the last two years, the company has focused on "platformization," which means combining various security solutions into a single, integrated platform. The strategy, Palo Alto contends, makes each component stronger than corresponding standalone products. And the headline for investors is that platformization can help grow bookings and therefore revenue.

Cybersecurity is one of the least concentrated categories in the software industry, Owens pointed out, citing data from Gartner. The top five cybersecurity vendors claim just 26% of the market, compared to an average across software categories of 56%. That gives Palo Alto a chance to consolidate.

"We think PANW is in prime position to take an outsized portion of this consolidation opportunity, with the company boasting the most broad platform across all of security," Owens wrote.

There's some evidence Palo Alto already has been making inroads. In Piper Sandler's channel checks, a strong majority number of customers in the last two quarters have said they're seeing an inflection in their business with Palo Alto as a result of platformization.

And Palo Alto's own reports show the total number of platformization contracts rising to 1,250 last quarter from 900 a year prior.

"Though the benefits of this strategy shift have yet to result in improved revenue growth or outsized market share gains at this point, we think traction has been building under the covers and will drive inflection over the mid- to long-term," Owens argued.

Piper Sandler also sees progress ahead for Palo Alto's free cash flow margins, which have contracted slightly over the last two years despite expanding operating margins. A move away from multi-year upfront billings has driven this change, but with payment collections set to accelerate in fiscal 2026, "the tide is beginning to turn," Owens wrote.

Should Palo Alto execute the way Piper Sandler expects it to, the question will be whether investors can hang in long enough to enjoy the returns.

Write to Nate Wolf at nate.wolf@barrons.com

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August 12, 2025 10:42 ET (14:42 GMT)

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