Palo Alto Networks Delivers Strong FCF Margins - Is PANW Stock Set to Rise?

Palo Alto Networks Delivers Strong FCF Margins - Is PANW Stock Set to Rise?

Mark R. Hake, CFA

Mon, September 7, 2026 at 4:30 PM GMT+3 5 min read

• PANW +1.12%

Palo Alto Networks (PANW) reported better-than-expected fiscal Q4 free cash flow (FCF) and FCF margins on Sept. 1, and management expects margins to rise. PANW stock could be worth 38% more at $461 per share.

PANW closed at $333.26 on Friday, Sept. 4. That's down from before its earnings release. But could it be poised to rise? I think so. Its strong FCF margins and analysts' higher revenue forecasts are hard for the market to ignore. Let's look at.

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Strong FCF Margins

The bottom line is that this cybersecurity software company's revenue and free cash flow (FCF) remained strong. I discussed this in a recent pre-earnings release Barchart article on Aug. 24 ("Palo Alto Networks Could Be Worth Over $433 - 21% More - as Analysts Hike Their Revenue Forecasts").

I wrote that if the company could deliver at least a 37.5% FCF margin for its fiscal year ending July 31, 2026, as management had projected in its Q3 release, PANW could be worth at least $433 per share.

It did better than that. Management reported its trailing 12-month (TTM) adjusted FCF margin was 38.4%, much better than expected. That also exceeded last year's 38.0% adj. FCF margin.

This strong performance can be seen on page 16 of its earnings presentation deck:

Moreover, Palo Alto Networks management said it expects a 38% margin in FY 27 (ending July 31, 2027) and is still on track to deliver a 40% margin FY 2028.

As a result, analysts have raised their ongoing revenue forecasts and price targets.

Forecasting FCF and Price Targets

For example, analysts have raised their FY 2027 revenue forecasts to $14.17 billion (up from $13.84 billion in my last Barchart article), or +23.4% over its $11.48 billion in FY 26.

In addition, analysts have introduced FY 2028 revenue forecasts of $16.19 billion. So, over the next two years, sales are expected to rise 41%.

Let's use a $14.675 billion projection for the next 12 months (NTM). That incorporates 3/4ths of the FY27 and one-quarter of the FY28 analysts' forecasts.

Using a 38.4% adj. FCF (i.e., the same as in FY 26), its adj. FCF could rise to over $5.6 billion:

$14.675 billion revenue NTM x 0.384 = $5.635 billion adj. FCF

That's over $1.2 billion more than the $4.4 billion in FY 26 (see below):

In other words, expect to see adj FCF rise by over 27.6% (i.e., $5.635b/$4.414b-1 = 0.2766)

This implies that the fair market value (FMV) for Palo Alto Networks could be significantly higher than Friday's market cap of $271.6 billion.

For example, if we assume the market will value this FCF in one year with a 1.5% FCF yield (its average FCF yield metric):

$5.635b / 0.015 = $375.67 billion FMV

In other words, the price target (PT) is +38.3% higher than today's price:

$333.26 price x 1.383 = $461 PT

Moreover, if the company delivers a 40% adj. FCF margin in FY 2028, this PT could be way too low.

Analysts agree. Yahoo! Finance now says the average PT is $390.50, up from $357.55 in my last Barchart article a week ago. Barchart is at $391.40, up from $364.96.

However, there's no guarantee PANW will rise. One way to play PANW is to short out-of-the-money (OTM) puts.

Shorting OTM PANW Puts

This play allows an investor to collect income while waiting for PANW to fall to a lower buy-in point. It works well if the stock drops just a little, stays flat, or rises slightly over the period.

That's why it's best to do this play on a one-month basis. This allows the short-put play to benefit from time decay in the shorted put premium.

For example, the Oct. 9, 2026, expiry period, just over a month from now, shows that the $310.00 put option strike price is about 7% below Friday's close ($333.26). But the midpoint premium is still high at $9.23.

This means a cash-secured put (CSP) short has a one-month yield of almost 3%:

$9.23/$310.00 = 0.0.298 = 2.98%

That means an investor who posts $31,000 in cash as collateral with their brokerage firm can collect $923 immediately. As long as PANW stays above $310 by Oct. 9, or 7% lower, the collateral won't be assigned to buy 100 shares at $310.

But even if that happens, the CSP buy-in point is lower: $310-$9.23 = $300.77. That is 9.75% below Friday's close and provides an attractive buy-in:

$461 PT / $300.77 = +53.3% expected return

Even if the put expires worthless, the investor keeps the 2.98% yield. So, if repeated for 6 months, the expected return (ER) is 17.88%, or 35.76% annualized.

That's close to the 38.3% expected return above for a buy-and-hold investor in PANW at Friday's close.

The bottom line is that PANW is poised to rise. One safe way to play it is to short out-of-the-money (OTM) cash-secured puts (CSP).

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com