DCF Studio

    PANW · NMS · Technology

    Palo Alto Networks, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 36.65

    Market price

    USD 363.58

    Implied upside

    -89.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Current EV/EBITDA of 191.5x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 36.65-89.9%
    Exit multiple
    USD 81.09-77.7%
    Market price
    USD 363.58

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 13.6bnUSD 16.1bnUSD 19.1bnUSD 22.7bnUSD 26.9bn+18.5%
    EBITUSD 1.1bnUSD 1.4bnUSD 1.6bnUSD 1.9bnUSD 2.3bn+18.5%
    NOPATUSD 905.0mUSD 1.1bnUSD 1.3bnUSD 1.5bnUSD 1.8bn+18.5%
    Add depreciation & amortisationUSD 639.6mUSD 758.1mUSD 898.6mUSD 1.1bnUSD 1.3bn+18.5%
    Less capital expenditureUSD -360.3mUSD -427.0mUSD -506.2mUSD -600.0mUSD -711.3m+18.5%
    Less increase in working capitalUSD 1.6bnUSD 1.9bnUSD 2.3bnUSD 2.7bnUSD 3.2bn-18.5%
    Free cashflow to firmUSD 2.8bnUSD 3.4bnUSD 4.0bnUSD 4.7bnUSD 5.6bn+18.5%
    Discount factor0.95290.86540.78580.71360.6480-
    Present valueUSD 2.7bnUSD 2.9bnUSD 3.1bnUSD 3.4bnUSD 3.6bn+7.6%
    Present Value Of The ForecastUSD 15.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.938Reported 0.908, pulled toward 1.0 (Blume)
    Cost of equity10.16%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 297.4bn99.2% of capital
    Total debtUSD 2.5bn0.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.12%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 36.65

    43% of EV

    Forecast FCFF, final year
    USD 5.6bn
    Capex at depreciation, working capital in reinvestment
    USD 1.8bn
    Less reinvestment at g/ROIC (24.7% of NOPAT)
    USD -441.4m
    Capitalised
    USD 1.3bn
    ROIC (WACC floor)
    10.1%
    Terminal value, undiscounted
    USD 18.1bn
    Terminal value, discounted
    USD 11.7bn
    Enterprise value
    USD 27.4bn
    Less net debt
    USD -571.0m
    Equity value
    USD 28.0bn

    Exit at 20.0x EBITDA

    Value per shareUSD 81.09

    74% of EV

    Terminal value, undiscounted
    USD 70.5bn
    Terminal value, discounted
    USD 45.7bn
    Enterprise value
    USD 61.4bn
    Less net debt
    USD -571.0m
    Equity value
    USD 62.0bn

    Spread between methods: 75%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.12%43.1143.3043.5243.7544.01
    9.12%39.3839.4739.5539.6439.73
    10.12%36.5036.5836.6536.7336.80
    11.12%34.1034.1734.2334.3034.36
    12.12%32.0632.1232.1732.2332.29

    Outlined: this model. Green text: above today's price of 363.58. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year18.5%85.8%+67.2pp
    Discount rate10.1%2.9%-7.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.