HomeStockPalo Alto Networks, Inc. (NASDAQ:PANW) Shares May Be Undervalued by 23%

Palo Alto Networks, Inc. (NASDAQ:PANW) Shares May Be Undervalued by 23%


Explore the potential undervaluation of Palo Alto Networks, Inc. (NASDAQ: PANW) shares by 23%.

Palo Alto Organizations’ assessed fair worth is US$395 given 2 Phase Free Income to Value

Palo Alto Organizations’ US$303 share cost flags that it very well may be 23% underestimated

Our fair worth gauge is 18% higher than Palo Alto Organizations’ investigator value focus of US$334

Does the February share cost for Palo Alto Organizations, Inc. (NASDAQ: PANW) reflect what it’s truly worth? Today, we will gauge the stock’s inherent worth by projecting its future incomes and afterward limiting them to the present value.US$334

We will exploit the Limited Income (DCF) model for this reason. Try not to get put off by the language, the numerical behind it is entirely direct.

We by and large accept that an organization’s worth is the current worth of all of the money it will create from here on out. In any case, a DCF is only one valuation metric among many, and it isn’t without blemishes. Anyone with any interest in learning a smidgen more about natural worth ought to have perused the Essentially Money St examination model.

What’s The Estimated Valuation?

Palo Alto Networks, Inc. (NASDAQ:PANW)

We use what is known as a 2-stage model, which just means we have two unique times of development rates for the organization’s incomes. By and large, the principal stage is higher development, and the subsequent stage is a lower development stage.

To get going with, we want to assess the following decade of incomes. Where potential we use examiner gauges, however when these aren’t free we extrapolate the past free income (FCF) from the last gauge or revealed esteem.

We accept organizations with contracting free income will slow their pace of shrinkage, and that organizations with developing free income will see their development rate slow, over this period. We do this to mirror that development will in general sluggish more in the early years than it does in later years.

A DCF is about the possibility that a dollar in what’s in store is less important than a dollar today, so we really want to limit the amount of these future incomes to show up at a current worth gauge:

10-year free cash flow (FCF) forecast

Levered FCF ($, Millions)US$3.07bUS$3.51bUS$4.12bUS$4.80bUS$5.64bUS$6.27bUS$6.80bUS$7.25bUS$7.63bUS$7.97b
Growth Rate Estimate SourceAnalyst x27Analyst x26Analyst x19Analyst x1Analyst x1Est @ 11.09%Est @ 8.45%Est @ 6.60%Est @ 5.31%Est @ 4.40%
Present Value ($, Millions) Discounted @ 6.9%US$2.9kUS$3.1kUS$3.4kUS$3.7kUS$4.0kUS$4.2kUS$4.3kUS$4.2kUS$4.2kUS$4.1k
(“Est” = FCF growth rate estimated by Simply Wall St)

Present Value of 10-year Cash Flow (PVCF) = US$38b

We currently need to work out the Terminal Worth, which represents everyone representing things to come incomes after this long term period. The Gordon Development recipe is utilized to compute Terminal Worth at a future yearly development rate equivalent to the 5-year normal of the 10-year government security yield of 2.3%. We rebate the terminal incomes to the present worth at an expense of the value of 6.9%.

Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$8.0b× (1 + 2.3%) ÷ (6.9%– 2.3%) = US$175b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$175b÷ ( 1 + 6.9%)10= US$90b

The complete worth, or value esteem, is then the amount of the current worth representing things to come incomes, which for this situation is US$128b. To get the inborn worth per share, we partition this by the absolute number of offers extraordinary.

Comparative with the ongoing offer cost of US$303, the organization seems a touch underestimated at a 23% rebate to where the stock cost exchanges right now. Valuations are uncertain instruments, however, rather like a telescope – move a couple of degrees and end up in an alternate cosmic system. Would keep this in care.

Source : dcf

Important Assumptions

Palo Alto Networks, Inc. (NASDAQ:PANW)

We would direct out that the main contributions toward a limited income are the markdown rate and obviously the genuine incomes. On the off chance that you disagree with these outcome, have a go at the estimation yourself and play with the suppositions.

The DCF likewise doesn’t think about the conceivable cyclicality of an industry or an organization’s future capital necessities, so it doesn’t give a full image of an organization’s expected presentation. Considering that we are viewing at Palo Alto Organizations as possible investors, the expense of value is utilized as the markdown rate, as opposed to the expense of capital (or weighted normal expense of capital, WACC) which represents obligation.

In this estimation we’ve utilized 6.9%, which depends on a turned beta of 1.011. Beta is a proportion of a stock’s unpredictability, contrasted with the market in general. We get our beta from the business normal beta of universally equivalent organizations, with a forced cut off somewhere in the range of 0.8 and 2.0, which is a sensible reach for a steady business.

SWOT Analysis for Palo Alto Networks


  • Earnings growth over the past year exceeded the industry.
  • Debt is not viewed as a risk.


  • Shareholders have been diluted in the past year.


  • Annual revenue is forecast to grow faster than the American market.
  • Trading below our estimate of fair value by more than 20%.


  • Annual earnings are forecast to decline for the next 3 years.


You’re absolutely right. While the valuation of a company is certainly an important factor to consider, it’s just one of many variables that should be evaluated. The discounted cash flow (DCF) model is a commonly used tool for valuing stocks, but it’s important to remember that it’s not perfect. Instead, the DCF model can be best used to test specific assumptions and hypotheses to determine whether they would lead to the company being undervalued or overvalued. By doing so, you can gain a better understanding of the company’s overall financial health and make more informed investment decisions.

It’s important to carefully analyze the terminal value growth rate and consider how even a slight adjustment can significantly impact the final outcome. Additionally, it’s worth exploring why the company may be trading at a discount to its intrinsic value. When looking specifically at Palo Alto Networks, there are three more factors that you should take into account.

Risk : It’s always important to consider the risks involved when making investments. In the case of Palo Alto Networks, there are two warning signs that have been identified, at least one of which is significant. Understanding these risks should definitely be a part of your investment process to ensure you are making informed decisions.

Management : Check if insiders have increased their PANW shares to benefit from market sentiment. Get insights into CEO compensation and governance with our management and board analysis.

High Quality Alternatives: Discover more high-quality stocks with our interactive list. Don’t miss out on the opportunity to find a good all-rounder.

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NASDAQ – GS every day. If you want to find the calculation for other stocks just search here.

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