Sales could surge for Palo Alto Networks (NASDAQ: PANW), after the cybersecurity company starts selling identity security to its customers, boosting the value of the company.
Once its $25 billion acquisition of CyberArk Software closes, Palo Alto can offer its current set of customers more software. CyberArk software assists companies in protecting their data and platforms used by their employees or customers, giving them access only to areas where they have privileges.
Sometimes the stock market gets it wrong in reacting negatively to news of a merger. Shares of Palo Alto declined 5% July 30, after it announced the acquisition. But in the past five days, investors have started to regain confidence in the company, sending shares up 2%.
Before the deal announcement, Palo Alto’s stock stood near a 52-week high. The company is scheduled to report earnings Aug. 18.
Investors are right about one thing: this deal is expensive. Palo Alto is paying for the acquisition with $2.5 billion in cash and over 100 million shares of Palo Alto. That puts its total share count at 785 million and lowers earnings per share by 13.5%.
Confident company and analysts
But Palo Alto and several analysts are confident that buying CyberArk is the right move for the company to grow. Palo Alto’s second-half 2026 net income could rise by more than 10% to $1.5 billion, according to analysts.
While investors were unsure of the two companies’ synergies initially, that pessimism could be unwarranted. Palo Alto’s revenue could exceed analysts’ estimates, Mizuho Securities analyst Gregg Moskowitz wrote in a research note.
Cross-selling CyberArk’s complementary products to Palo Alto’s current roster of customers will generate more sales and a higher profit margin, resulting in a deal that is “highly synergistic,” he said. “The allure of CyberArk to Palo Alto is clear.”
The two companies should also benefit from cutting redundant costs, wrote BTIG analyst Gray Powell. That will increase Palo Alto’s operating profit margin to over 32% by 2028 from just under 28% in 2026, he said.
Investors could receive a gift during the second half of 2026. That’s when the deal should close and more revenue can be produced, potentially boosting profits and shareholder value.
Comments