Palo Alto Networks (PANW) is set to release its fiscal Q4 earnings on Sept. 1. Since my last Barchart article, when I set a $402.88 price target, analysts have raised their revenue forecasts. The new PANW PT is $433, 21% higher. This article will show why.
PANW closed at $357.87 on Friday, Aug. 21. That's down from a peak of $394.42, close to my prior PT, on Aug. 13. It could move significantly higher over the next year.
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PANW stock - last 3 months - Barchart - As of Aug. 21, 2026 Free Cash Flow Margins
This depends on the upcoming Q4 trailing 12-month (TTM) adjusted free cash flow (FCF) margin. If it comes in strong, the price target could even be higher.
Palo Alto Networks is one of the very few companies that tracks and projects its TTM FCF margins. That is because most of its annual FCF comes in during one quarter, Q1. Each quarter it tracks its TTM FCF margin.
For example, below is a chart from page 15 of its last quarterly report deck (Q3 ending April 30). It shows a 38.5% TTM FCF margin, but it has exceeded 39% in one quarter.
Palo Alto Networks Q3 deck page 15 - TTM FCF margins Management said in the outlook section of its Q3 earnings release that it expects to make a 37.5% TTM adj. FCF margin in Q4 (i.e., for the full fiscal year ending July 31, 2026).
So, using analysts' projections of $11.42 billion for the year, that means adj. FCF could reach $4.2825 billion. That would be higher than the $4.08 billion in Q3 TTM adj. FCF, even though the margin was lower.
Forecasting FCF
So, this is already “baked” into PANW's market value. Any higher margin or result greater than $4.28 billion could push PANW stock higher.
For example, the CFO, Dipak Golechha, said in the third paragraph of the Q3 earnings release that Palo Alto expects to reach a 40% margin eventually:
“We are executing ahead of our M&A integration plans and improving profitability across our businesses, which keeps us firmly on track to achieve 40% adjusted free cash flow margin in FY28…”
So, for forecasting purposes, let's assume next year, FY 2027 ending July 2027, the company will have at least a 38% FCF margin. That's higher than management's forecast for FY 2026 (37.5%), but lower than the Q3 TTM adj FCF margin of 38.5%.
Moreover, analysts have hiked their FY 2027 forecasts. Since my Barchart article on June 30, “Dear Palo Alto Networks Shareholders - Next Stop $400 Per Share,” it has risen from $13.78 billion to $13.84 billion today (Seeking Alpha analyst survey).
As a result, FCF could rise to over $5.25 billion:
$13.84 b (FY 27) revenue x 0.38 = $5.2592 billion adj. FCF
That's almost $1 billion higher than the projected $4.28 billion for FY 26. This could push PANW stock even higher. Here's why.
Valuing PANW Stock
Right now, Palo Alto Networks has a $299.66 billion market value, according to Yahoo! Finance.
That means its projected adj FCF is 1.43% of its market cap:
$4.2825b FY 26 adj. FCF (est.) / $299.66 = 0.0143
Just to be conservative, let's assume a higher FCF yield, 1.45%, for next year:
$5.2592b / 0.0145 = $362.7 billion fair market value (FMV)
This FMV is 21% higher than Friday's market cap of $300 billion. In other words, the price target (PT) is 21% higher than Friday's price of $357.87:
1.21 x $357.87 = $433 per share
That's higher than my prior $402.88 price target. Analysts have also hiked their PTs. For example, Yahoo! Finance now shows that the analyst average PT is $357.55, and Barchart's survey PT is $364.96. These are higher than three months ago, as I reported in my June 8 article: $306.56 and $308.14, respectively.
Conclusion
If Palo Alto Networks shows that it has exceeded a 37.5% adj. FCF margin for FY 2026 and maintains its 40% margin forecast for FY 2028, expect PANW stock to move higher.
That's because its FCF could keep rising by almost $1 billion, based on my conservative assumptions. Based on a 1.45% FCF yield metric and a 38% adj. FCF margin for FY 2027, I suspect its fair market value could hit $363 billion, or 21% higher than today's market cap.
That means PANW's price target is 21% higher at $433 per share.
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. For more information please view the Barchart Disclosure Policy here.
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