Palo Alto Networks PANW is in a rut: The stock of this wide-moat cybersecurity leader was flat in 2025. Granted, sales growth has slowed. Even so, we think the stock is a buy as it trades 17% below our $225 fair value estimate. Palo Alto’s sticky security products are unlikely to face the ax, and the company stands to benefit from increased vendor consolidation as customers seek to rationalize costs across their tech stacks. Palo Alto is embarking on two acquisitions, yet it is targeting adjusted free cash flow margins of 40% or more by fiscal 2028, up from 38% in fiscal 2025. This guidance should give investors confidence that the acquisitions won’t be margin-dilutive over the medium to long term.

We view Palo Alto Networks as a leader in cybersecurity, with platforms spanning network security, cloud security, and security operations. As cybersecurity threats increase in complexity and intensity, we see IT security teams looking for platforms that offer more holistic security coverage versus point solutions that can inadvertently create data silos. This shift toward consolidation is an opportunity for platform cybersecurity vendors like Palo Alto. Once customers are landed, Palo Alto can upsell them other modules within the same platform or cross-sell them additional platforms. We see its entrenchment in clients’ ecosystems increasing, driving retention rates and customer lifetime values higher.

Key Morningstar metrics for Palo Alto

  • Fair Value Estimate: $225
  • Star Rating: 4 Stars
  • Economic Moat Rating: Wide
  • Uncertainty Rating: High

Economic Moat Rating

We assign Palo Alto a wide moat rating owing primarily to strong customer switching costs and secondarily to a network effect associated with its offerings. We view Palo Alto as a leader in multiple categories spanning network security, cloud security, and security operations. The company has sold into all the Fortune 100 and more than three-fourths of the Global 2000. Its platform approach to cybersecurity has also enabled it to increase its wallet share among existing clients while adding new ones at a fast clip. We expect this dominance to persist, and we expect Palo Alto’s land-and-expand model to allow the company to gain operating leverage and produce excess returns for the foreseeable future.

Fair Value Estimate for Palo Alto

Our $225 fair value estimate implies a 2026 enterprise value/sales multiple of 15 times. We forecast revenue to grow at a 13% compound annual rate over the next five years. We see massive greenfield opportunities for Palo Alto to expand its business. Additionally, we project continued upselling and cross-selling activity. As the company grows and software becomes a larger part of its top line, we expect GAAP gross margins to expand to the high 70s over our 10-year explicit forecast. With 2023 marking the return to GAAP profitability, we also model Palo Alto to materially expand GAAP operating margins over our 10-year explicit forecast as it balances profitability with growth.

Risk and Uncertainty

Cybersecurity is known for its rapid pace of development. Large cybersecurity vendors like Palo Alto stand to be disrupted by smaller upstarts that could outperform in key modules. To stay ahead, Palo Alto has to constantly invest in technologies that it predicts its clients will need. However, an inaccurate assessment of future customer demand could lead the company to either overpay for an acquisition or overspend to develop the same technology in-house. We believe that the ambitious proposed acquisition of CyberArk, which values the identity vendor at around $25 billion, introduces execution risk. Also, Palo Alto’s solutions are tasked with protecting customers from cyberattacks, making data privacy and security a key concern.

Palo Alto bulls say

  • Palo Alto enjoys strong secular tailwinds as security operations, cloud security, and the convergence of networking and security are projected to grow rapidly.
  • Palo Alto’s strength in high-margin firewalls should allow the company to generate substantial free cash flow.
  • The company stands to benefit as clients consolidate vendors and opt for a platform-based cybersecurity approach.

Palo Alto bears say

  • Large public cloud vendors often offer their own cybersecurity solutions, which could hamper Palo Alto’s growth opportunities.
  • Competitors also utilize a platform approach, which entrenches them in their clients’ ecosystems and makes them harder to displace.
  • The proposed acquisition of CyberArk could open Palo Alto up to substantial execution risk, potentially disturbing the solid growth it has seen in other verticals.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.