Why Did Palo Alto Networks Stock Drop Today?

**Palo Alto Networks **(PANW 4.72%) stock closed down 4.9% on Wednesday -- which is kind of surprising, because according to one Wall Street analyst, the stock should go up as much as 30% over the next year.

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Evercore loves Palo Alto Networks

This morning, you see, Evercore ISI analyst Peter Levine raised his price target on Palo Alto Networks from $320 to $415. Instead of rising, however, Palo Alto stock fell... to almost precisely $320!

This probably wasn't the reaction Levine was expecting -- but why did he raise his price target past $320 in the first place?

Well, according to the analyst, "cyber channel checks" confirm Palo Alto is "at the center of identity, observability, and AI-powered SecOps," and likely to benefit from consolidation in the cybersecurity industry, leading to improved free cash flow. Levine believes Palo Alto, which generated $3.5 billion in free cash flow last year and $3.8 billion over the past 12 months, will continue to grow into 2027, and is worth 52 times next year's projected FCF.

That works out to about $338 billion, or $415 per share.

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NASDAQ: PANW

Palo Alto Networks

Today's Change

(-4.72%) $-15.92

Current Price

$321.12

Key Data Points

Market Cap

$275BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Market cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day's Range

$315.00 - $336.58

52wk Range

$139.57 - $368.17

Volume

356.5K

Avg Vol

8.4M

Gross Margin

71.05%

Valuing Palo Alto stock

Is this reasonable? It appears to imply that Levine is forecasting a positive cash profit of $6.5 billion next year -- quite an increase year over year and significantly higher than the consensus estimate on Wall Street, which, according to S&P Global Market Intelligence data, puts Palo Alto at $5.2 billion in 2027.

If Palo Alto achieves such a result next year, it's going to surprise a lot of investors, me among them. If Palo Alto _fails _to grow as fast as Levine is projecting, though, 52x FCF is going to look like an awfully high price to pay for this stock.