It has been about a month since the last earnings report for Palo Alto Networks (PANW Quick QuotePANW - Free Report) . Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Palo Alto due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Palo Alto’s Q4 Earnings & Revenues Beat Estimates

Palo Alto Networks reported strong fourth-quarter fiscal 2022 results, wherein both earnings and revenues not only surpassed the respective Zacks Consensus Estimate but also improved year over year.

The company reported non-GAAP earnings of $2.39 per share, beating the Zacks Consensus Estimate of $2.28. The bottom line improved 49.4% from the year-ago quarter’s non-GAAP earnings of $1.60 per share.

Palo Alto’s fiscal fourth-quarter revenues of $1.60 billion surpassed the Zacks Consensus Estimate of $1.54 billion. The top line grew 27% from the year-earlier reported figure.

The top line was aided by several deal wins and increased adoption of Palo Alto’s Next-Generation Security (“NGS”) platforms due to the hybrid work culture and the heightened need for stronger security.

Palo Alto’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.

Quarterly Details

Product revenues increased 20.2% year over year to $408.1 million and contributed 26.3% of total revenues. The company’s subscription and support revenues, which accounted for 73.7% of total revenues, improved 29.8% to $1.14 billion.

Billings jumped 44% to $2.69 billion. Deferred revenues at the end of the fiscal fourth quarter were $3.64 billion. Palo Alto’s remaining performance obligation climbed to $8.2 billion, reflecting a year-over-year surge of 40%.

Palo Alto’s NGS annualized recurring revenues (ARR) were $1.89 billion in the reported quarter compared with $1.18 billion in the year-ago quarter and $1.61 billion in the previous quarter.

The company’s non-GAAP gross profit increased 23.7% to $1.14 billion. However, non-GAAP gross margin contracted 210 basis points (bps) to 73.2%, primarily due to heightened costs associated with supply chain issues.

Non-GAAP operating income rose 52% to $323.2 million while non-GAAP operating margin expanded 330 bps to 20.8%.

Fiscal 2022 Highlights

PANW’s fiscal 2022 revenues grew 29% year over year to $5.50 billion and narrowly surpassed the Zacks Consensus Estimate of $5.49 billion. The company reported non-GAAP earnings of $7.56 per share, which outpaced the Zacks Consensus Estimate of $7.45 per share and grew 23.1% from the year-ago quarter.

In fiscal 2022, billings increased 37% to $7.47 billion.

Balance Sheet & Cash Flow

Palo Alto exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of $3.63 billion, down from $3.87 billion at the end of the previous quarter. However, the company’s balance sheet does not carry any long-term debt.

PANW generated an operating cash flow of $523.7 million and a non-GAAP adjusted free cash flow of $484.5 million during the fourth quarter. Non-GAAP adjusted free cash flow margin came in at 31.2%.

During the fourth quarter, the company increased its share-repurchase authorization by $915 million.

For fiscal 2022, Palo Alto generated an operating cash flow of $1.98 billion and a non-GAAP adjusted free cash flow of $1.83 billion. Non-GAAP adjusted free cash flow margin came in at 33%.

Guidance

Buoyed by a strong fiscal fourth-quarter performance, Palo Alto provided its fiscal 2023 guidance. The company anticipates revenues of $6.85-$6.90 billion, suggesting growth of around 25% from the fiscal 2022 level.

Total billings are estimated to be $8.95-$9.05 billion for fiscal 2023, indicating a year-over-year increase of 20-21%. Palo Alto projects its non-GAAP earnings to be in the $9.40-$9.50 per share band.

Non-GAAP adjusted free cash flow margin is expected in the range of 33.5-34.5% for fiscal 2023.

For the first quarter of fiscal 2023, Palo Alto projects revenues between $1.535 billion and $1.555 billion, suggesting year-over-year growth of 23-25%.

Total billings are anticipated between $1.68 billion and $1.70 billion, indicating an increase of 22-23% from the year-ago quarter. Non-GAAP earnings are projected to be $2.03-$2.06 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 216.67% due to these changes.

VGM Scores

Currently, Palo Alto has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Palo Alto has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.