Palo Alto Networks’ Rating Slashed at BofA Securities

Bank of America analysts downgraded shares of Palo Alto Networks (NASDAQ:PANW) from Buy to Neutral, while also reducing the price target from $290 to $265. This downgrade is primarily attributed to concerns about potential further pressures on the company's billings and free cash flow (FCF).

The analysts noted the significant increase in Palo Alto Networks' stock value, which has risen by 85% year-to-date. However, they expressed concerns about potential weaknesses in billings growth and a trend towards shorter contract durations. These factors contributed to the decision to lower the rating.

Palo Alto Networks has been increasingly engaging in vendor financing activities in recent times. These activities involve providing financing to customers in exchange for long-term commitments and often larger deal sizes. As a result, the company has seen a substantial rise in its billings balances.

The combination of heightened financing activities and the current economic uncertainties poses increased risks for Palo Alto Networks. The company has witnessed a 36% quarter-over-quarter decline in billings, which the analysts attribute to its reluctance to offer deeper discounts. This decline is happening alongside a market trend where customers are favoring shorter-term deals.