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Palo Alto Networks Nabs Cisco, Juniper Market Share … Again

Palo Alto Networks ( PANW ) last quarter again nabbed market share from rivals  Cisco Systems ( CSCO ), Check Point Software Technologies ( CHKP ) and Juniper Networks ( JNPR ), a Piper Jaffray analyst wrote Monday ahead of Palo Alto’s fiscal Q2 earnings late Thursday. In a survey of third parties selling Palo Alto products, half said Palo Alto is most consistently beating out Check Point, Piper Jaffray’s Andrew Nowinski wrote in a research report. “Cisco, Check Point and Juniper have consistently been called out by resellers as the vendors most frequently losing to Palo Alto,” he wrote. “These are also the top vendors in the firewall market, suggesting Palo Alto continues to gain share at the expense of all the major vendors in the space.” That’s sure to rile Cisco, which last week  unveiled a next-generation firewall in direct competition with Palo Alto, Check Point, Fortinet ( FTNT ) and Intel ( INTC )-owned McAfee. It was also the first time that Check Point was cited as the vendor Palo Alto beats most often, Nowinski wrote. Nowinski retained his rating on Palo Alto Networks stock to overweight, with a 208 price target. At least three other analysts, however, cut their price target on Palo Alto stock Monday ahead of the Thursday earnings report. Sales, EPS Seen Decelerating Palo Alto stock was up 1% in afternoon trading on the stock market today , but rival  FireEye ( FEYE ) was up 9%. FireEye announced Hewlett Packard Enterprise ( HPE ) as its global alliance partner of the year. For fiscal Q2 ended in January, Palo Alto Networks is expected to report $318.3 million in sales and 39 cents earnings per share ex items, up 46% and 105%, respectively, vs. the year-earlier quarter. It would be its first quarter eclipsing the $300 million-mark. But sales and EPS minus items are expected to decelerate for the second consecutive quarter, according to the consensus of 40 analysts polled by Thomson Reuters. The consensus model is in line with Palo Alto’s earlier guidance for $314 million to $318 million and 38 cents to 39 cents. Palo Alto stock is down 28% this year, slightly worse than IBD’s 25-company Computer-Software Security industry group, which is 24% off its 2015 closure. Cybersecurity stocks were pounded in January on a perceived slowdown in spending after gloomy reports from firms like Tableau Software ( DATA ) and LinkedIn ( LNKD ). Neither Nowinski nor Dougherty analyst Catharine Trebnick see that slowdown for Palo Alto. Trebnick maintained her buy rating and 215 price target on Palo Alto stock. She urged investors to compare Palo Alto to direct next-generation firewall vendors. Firewall Vendors Outperform Peers Barracuda Networks ( CUDA ), CyberArk Software ( CYBR ), Proofpoint ( PFPT ), Imperva ( IMPV ), Rapid7 ( RPD ), Qualys ( QLYS ), Splunk ( SPLK ) and FireEye “have provided a seemingly negative read-through for Palo Alto Networks,” Trebnick wrote in a research report. “Unlike elsewhere in security, next-generation firewall vendors that cater to enterprises have all managed to produce good enough results for investors.” Trebnick expects Palo Alto to beat consensus expectations. Wildfire and Traps are driving higher attach rates, she wrote. Wildfire is Palo Alto’s cloud-based malware-analysis system, which competes with FireEye. Traps is an endpoint-security product. Over the past 12-16 months, Palo Alto has expanded its suite of products to seven from four, Trebnick wrote. Together, Palo Alto touts them as a “next-generation security platform.” “Our sources have indicated that they are now seeing increased success from this approach as enterprises are broadening their purchases to include more of the auxiliary software subscriptions,” she wrote. Trebnick and Nowinski alike see a strong April-quarter pipeline for Palo Alto. Nowinski said he expects a 3%-4% upside to Q3 guidance despite typical seasonal weakness.

Verizon XO Purchase Could Boost 5G Wireless, ‘Small Cell’ Plans

Verizon Communications ( VZ ), in a move that could boost its plans to offer 5G wireless services, agreed to buy privately held XO Communications’ fiber-optic network for about $1.8 billion. Verizon said it expects the deal to close by June 30. Level 3 Communications ( LVLT ) has also been viewed as a potential buyer of XO Communications. Controlled by activist investor Carl Icahn, XO Communications provides services to large and midsize businesses. It also connects cellphone towers to mobile switching centers, where calls are routed to long-distance networks. In that market, XO competed with Zayo Group Holdings ( ZAYO ) and others. Verizon plans on improving its wireless network with “small cell” technology in urban areas, a process called densification. The low-power “base stations” are located in shopping malls and outdoor public spaces. “Verizon’s ownership of XO’s fiber-based IP and Ethernet networks will help better serve enterprise and wholesale customers. In addition, acquired fiber facilities will help Verizon continue to densify its cell network,” said Verizon in a statement. Verizon will also lease XO Communications’ high-frequency wireless spectrum, with an option to buy for $200 million, by year-end 2018, UBS said in a research report. “LMDS (local multipoint distribution service) is very high frequency spectrum in the 28-31 GHz bands, which Verizon believes will be well-suited for 5G,” UBS analyst John Hodulik said in the report. “XO’s LMDS spectrum covers some of the largest U.S. metros, including New York, Boston, Chicago, Minneapolis, Atlanta, Miami, Tampa, Dallas and Austin, Denver, Phoenix, San Francisco and Los Angeles.” XO has also competed in what’s called the “special access” market, along with Sprint ( S ) and Level 3, vs. Verizon and AT&T ( T ). The Federal Communications Commission has been probing how banks, schools, retail outlets and others buy high-speed data services from telecom companies. Verizon stock was up a fraction in early afternoon trading in the stock market today .

Allergan Q4 Earnings Beat, But M&A Dance Card Challenges Comps

Big Pharma player Allergan unveiled what it expects to be its final full year of operation as an independent drug maker before merging into Pfizer, reporting fourth-quarter 2015 earnings that beat expectations and revenue that barely topped Wall Street estimates. Before the market open, Allergan ( AGN ) said non-GAAP earnings rose 33% to $3.41 per share on a revenue gain of 74% to $4.2 billion. Both metrics exclude discontinuing operations, notably Allergan’s Global Generics business that it agreed to sell in July. The Global Generics unit carries the old Actavis name and generic drugs lines of business. Actavis had purchased specialty drug and Botox maker Allergan, a deal that closed in March, and renamed itself Allergan. Shares jumped 2.8% to 283.07  in early trading in the stock market today . Allergan had closed down 0.8% on Friday to 275.75, 18% off its all-time high of 340.34, touched July 29. Pfizer ( PFE ) was up  1.4% to 29.93  in early trading Monday, 17% below a nearly 12-year high set July 31 at 36.46. Analysts polled by Thomson Reuters expected Q4 EPS of $3.34 minus items, down 14.6% from $3.91 in 2014, on revenue of $4.192 billion, up 3.4% from Q4 2014’s $4.057 billion, although analyst numbers apparently were not uniformly adjusted for discontinuing operations. Allergan presented the pro forma year-earlier numbers as adjusted EPS of $2.57 and revenue of $2.4 billion. For the full year, Allergan said non-GAAP EPS from continuing operations increased 78% to $13.43 on revenue from continuing operations up 124% to $15.07 billion. With varying adjustments, for the full 2015 analysts expected $15.43 per share minus items, up 66% from $9.29 in 2014, on sales of $18.206 billion, up 117% from $8.380 billion in 2014. Allergan reported a Q4  GAAP loss from continuing operations of $2.13 per share, compared to a GAAP loss from continuing operations of $4.48 per share in the prior-year period. It said full GAAP results were impacted by amortization and acquisition expenses, license agreements, impairments, and severance related mainly to the acquisition of Allergan on March 17,  and Kythera on Oct. 1, as well as research and development expenses resulting from the purchase of R&D assets of Mimetogen. Allergan had declined to freshen its guidance upon issuing its Q3 performance Nov. 4, citing early merger discussions with Pfizer back then. But Monday it guided 2016 revenue to about $17 billion, with “no material changes to gross margins” from current levels and a non-GAAP tax rate “normalized” to about 14%. Management didn’t specify EPS for the year nor offer Q1 guidance other than suggesting Q1 performance would be the weakest of the year and fall below Q4 2015 results. Allergan’s 2015 results were an analyst’s challenge, influenced by its extraordinary M&A dance card. In Q3, it began discontinuing operations of the renamed Actavis generic lines, which it agreed to sell to Teva Pharmaceutical ( TEVA ) in July for $40 billion. By Nov. 23, Allergan’s board agreed to Pfizer’s offer of 11.3 Pfizer shares for each Allergan share, then valuing Allergan at $363.63 a share, or $160 billion for the entire deal, expected to take nine months to close. CEO Brent Saunders told analysts in a conference call following the Q4 earnings release that he still expects the Pfizer buyout to close in the second half of 2016. It would be the second-largest acquisition ever, after the sale of Vodafone AirTouch in 1999 to Mannesmann for $202 billion. Dell’s October offer to buy EMC ( EMC ) is valued at $67 billion. The Pfizer acquisition of Allergan is another in a thinning number of tax inversion deals that allow American companies to domicile in Ireland, Allergan’s home base, where the buyer may enjoy a lower tax base. The Obama administration has criticized the practice and thrown up speed bumps, if not road blocks. On Feb. 8,  Pfizer said it plans to reorganize its two broad lines of business into three  after the merger with Allergan is complete. Allergan CFO Tessa Hilado told analysts that debt stood at $42.7 billion on Dec. 31 and that $8 billion would be paid down after the close of the Teva sale. She put revenue from top-seller Botox at $656 million in Q4, with eye drug Restasis at $365 million, and Namenda XR at $190 million.  She said the CVS ( CVS ) purchase of Target ( TGT ) pharmacies “had an effect in Q4” on revenue, but that it didn’t and wouldn’t impact earnings.