Key Points
There were doubts about the company’s latest deal.
It has agreed to acquire peer CyberArk for around $25 billion in cash and stock.
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Palo Alto Networks (NASDAQ: PANW) made waves Wednesday when it announced a pricey acquisition, and on Thursday, investors were clearly getting worried about the cost. Analysts, too, started to express concern, with two even downgrading their recommendation on the shares.
With these headwinds blowing in its face, Palo Alto’s stock lost more than 5% of its value during the latter part of the trading day. That was a far steeper decline than the 0.4% slide of the benchmark S&P 500 index.
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The $25 billion question
Palo Alto’s asset-to-be is peer cybersecurity company CyberArk Software, for which it agreed to pay roughly $25 billion in a cash-and-stock deal.
Image source: Getty Images.
CyberArk is a specialist in the niche area of identity security, and Palo Alto said that its ownership of the business will make the segment “a core pillar of the company’s multi-platform strategy.” The buyout has been unanimously approved by the boards of directors of both companies, and is anticipated to close in the second half of Palo Alto’s fiscal 2026.
Palo Alto certainly isn’t a poor company. Nevertheless, $25 billion is a major outlay. Several analysts don’t think that’s worth it, including that frequent downgrader, KeyBanc’s Eric Heath.
Well before market open Thursday, Heath enumerated several major strategic concerns about the deal, according to reports. He cast doubt on the potential synergies of the two businesses, and opined that customers are likely to prefer using a specialized company purely for identity security rather than a broad cybersecurity services provider, among other factors.
Unkind cuts?
Other analysts were similarly bearish, although they didn’t go as far as to downgrade their Palo Alto recommendations. They did reduce their price targets on the shares, however. That clutch of pundits included Mizuho’s Gregg Moskowitz, who cut $15 from his fair value assessment on the stock to $210 per share. He did maintain his outperform (i.e., buy) recommendation, however.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
