TLDR
- Palo Alto Networks (PANW) shares dropped 6% pre-market Wednesday after cutting its 2026 adjusted EPS forecast to $3.65–$3.70, down from $3.80–$3.90.
- Rising integration costs from the $25 billion CyberArk deal and $3.35 billion Chronosphere acquisition are squeezing margins.
- Revenue guidance was lifted to $11.28–$11.31 billion, up from $10.50–$10.54 billion.
- Q2 next-gen security ARR grew 33%; remaining performance obligations up 23%.
- TD Cowen kept its Buy rating and $255 price target, implying 56% upside from ~$163.50.
Palo Alto Networks (PANW) shares fell 6% in pre-market trading Wednesday, extending a 7% after-hours drop, after the cybersecurity firm cut its 2026 profit outlook due to costs tied to its recent acquisition spree.
The company lowered its adjusted EPS forecast to $3.65–$3.70 for fiscal 2026, down from $3.80–$3.90. At the same time, it raised its annual revenue guidance to $11.28–$11.31 billion, up from a prior range of $10.50–$10.54 billion.
Palo Alto Networks, Inc., PANW
The gap between a stronger revenue outlook and a weaker profit forecast tells the story here — integrating big acquisitions costs money, and right now that bill is coming due.
Acquisitions Driving the Pressure
Palo Alto completed its CyberArk acquisition in early February, with a $2.3 billion outlay hitting Q3 alone. It also agreed to buy cloud monitoring firm Chronosphere for $3.35 billion and acquired Israeli cybersecurity startup Koi.
The strategy is clear: build a unified, AI-ready security platform that covers identity, cloud, and threat detection under one roof.
Morningstar analyst Malik Ahmed Khan backed the approach. “The profitability cut is mostly due to the firm’s acquisitions and we see the firm being able to leverage these acquisitions by cross-selling its existing customer base,” he said.
Both the CyberArk and Chronosphere deals are folded into the company’s adjusted free cash flow margin targets — 37% for fiscal 2026 and 2027, rising to 40% by 2028.
Q2 Results Were Actually Strong
The underlying numbers were solid. Palo Alto reported 33% growth in next-gen security annual recurring revenue and 23% growth in remaining performance obligations for Q2 fiscal 2026.
The company generated $3.69 billion in levered free cash flow over the last twelve months and reaffirmed its free cash flow targets for the year.
Where Analysts Stand
TD Cowen reiterated its Buy rating and $255 price target — a 56% premium to Wednesday’s price of around $163.50. The firm said demand remains healthy and AI continues to accelerate growth.
Truist Securities and Piper Sandler both kept Buy-equivalent ratings, with targets of $200 and $265 respectively. BMO Capital held its Outperform rating at $200, forecasting 13–15% organic growth in next-gen security revenue over the next two quarters.
On the cautious side, Needham trimmed its target to $200 from $230, and Scotiabank cut to $180 from $228, flagging complexity and limited organic momentum — though both maintained positive ratings.
Overall analyst consensus sits at 1.71, reflecting a Strong Buy.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
