Bull v. Bear: PANW Earnings to Pressure Stock's Stellar 2026 Rally

Welcome back to fast market here on Schwab Network. On the earnings front, Palo Alto Network set to report after the close. Wall Street is looking for earnings of 98 cents per share on an adjusted basis on 3.35 billion in revenue. Expectations have been moving higher with analysts raising both earnings and revenue estimates multiple times over the past three months. The cyber security giant has beaten on both the top and bottom lines for eight straight quarters. The bar is high after the stock doubled this year. Investors will be watching the growth trajectory, AIdriven demand, and the company's push to sell more products through one platform. Platformization is what they call it. They also want to know how much of the recent growth is organic given the contribution from Cyber Arc. All right, time now for the tugof-war on Palo Alto. For that, let's welcome back in our co-host Tom White and Kevin Hings. Guys, it is bull versus bear time. So before we get to your example trace, we've got to get each of your thoughts on Palo Alto Networks. Kevin, I'll start with you. your take. >> Incredibly high bar. Every little article or note or or thing I've I've read on PaloAlto says there's an incredibly high bar. The valuations are high. The good news is it had a nice run off of Crowd Strikes earnings. Um the average uh recurring revenue in their next gen is one of the questions. Demand for AIdriven software is going to be one of the questions. A lot of times this company beats on earnings like you've reported, but the stock still there's still profit taking. So you have to be careful of that despite everything you've seen. But you know the crowd strike numbers lead you to think that PaloAlto's numbers are probably be going to be good as well. Doesn't necessarily mean the stock rallies though D. So careful here as this stock has run a long way. >> Tom, your take. >> Yeah, revenue uh just like last quarter which uh revenue grew 31%. They're expected about uh 32% growth this quarter. You look at remaining performance obligations, those are supposed to be up, you know, roughly 32 33% on a year-over-year basis. So that's a positive. And you've already seen it reflected in other names that have reported in the cy in the cyber space. Kevin hit on Crowd Strike, but Fortnet did pretty well. Uh you look at Cloudflare uh doing pretty well also. So it kind of fits that narrative that hey AI doesn't hurt these companies. It actually helps these companies and we've seen that repeatedly. The stock just off alltime highs. You mentioned it's up nearly, you know, 100% on a uh just in 2026 so far. Uh so the bar is high on this one but Crowd Strike's bar was high going into their report and they blew out numbers and raised guidance. Also watch margins on this company supposed to be gross margins supposed to be around 75% that'll be key and then that annual re recurring revenue uh that Kevin mentioned uh as far as their nextg uh security and there are three segments within this company but the need for more cyber security as AI continues to expand I think is going to be the theme going into this report. All right, let's get into the example trades. Kevin, why don't we start with yours? What's your approach today? >> So, no. So, realizing what we were just talking about a fact that they could beat the stocks already rallied. It could beat and still sell off, but the numbers may be really good. So, I don't want to go too crazy in the bearish camp. So, what I looked at, I looked at the expected move about $31. It was trading a couple dollars higher than this when I originally looked at this trades, but I looked at a high probability short put vertical just in the September 4th expiration. Selling the 335 put just a little inside the expected move. Buying the 325 put. I put looked that in about 210 trading about almost 250 now. So like I said, the stock has rallied. Now you can do one of two things. You can either collect the higher premium because the stock is sold off or you can adjust your strikes in line more in line with the expected move. But this is a $10 wide short put vertical trading about a 71% probability of finishing out of the money. So still high probability, but this one is risk defined to $10 minus whatever credit you take in. You do have to worry about expiration a little bit if it lands within in between the strikes. Always know that. But besides that, and any big move in either direction, it's profitable in three out of four, Tom, as you know, high probability collecting theta risk defined, Tom. >> Yep. Uh let's take a look at this one. Option market pricing in a one-day move uh you know, over the next 24 hours plus or minus about $31. So, this almost aligns with that uh probability of finishing out of the money at expiration. Kevin short neutral to bullish put vertical, selling the 335 put, buying the 325 put, short $10 wide put vertical here, collecting roughly. We've got 210 credit on this one, trading closer to 250. As Kevin mentioned, the credit you collect is what you can make. So, if you collect 210, 210 bucks with about $790 in risk on this one. Uh, I think one of the keys that Kevin mentioned on this one, it's a high probability of success. The idea here is the stock stays above 335 and you just that short put vertical goes out worthless and you just keep the 210 credit that you collected on it. Uh, but that 71% probability of finishing out of the money on the 70 uh on the 335 strike put uh I think is key almost aligning with that one standard deviation. Staying risk defined going into earnings. These are really high price stocks. So the leverage that the option market creates allows you to take a directional biased type of trade in this example it's neutral to bullish without having to be aggressive. Right? Instead of buying maybe an at the money call or an at the money call vertical with upside exposure. You can be wrong on this where the stock goes lower but still be profitable as long as it stays above that break even uh here of about 300 uh basically 300 32 $33 to the downside. Uh here is where you want the stock to remain above. Kevin, I went the same way with my example. Passive type of trading but staying risk defined but mine's to the upside here. selling an out- of- the money call vertical using that same September 4th weekly options that expire in just three days. Selling the 385 strike call, buying the 395 strike call. Show a short $10 wide neutral to bearish call vertical collecting. I looked at it earlier. It was trading around $2.30. Still trading about $2.30. That's what you can make on it. $230 per spread with $770 in risk. But that's all the way above 395 on this one. It's about that one standard deviation. Kev, the break even price on it, 38730 to the upside on this one. So, I've got a big cushion on this one. But Kevin, you know, in high price stocks, higher probability trades, giving yourself a better probability of success may make sense in this type of environment. >> Exactly, Tom. 73.6% 6% chance of finishing out of the money on your short call vertical. And Diane, traders think alike and we don't you what you want to be able to say here is I'm wrong, but I was still profitable, right? If neither of us need PaloAlto Networks to move at earnings to be profitable. If it sits right here, we're both profitable. If it moves a little bit in each direction, we're both profitable. So all we don't want mine on the downside times on the upside is a big move through the one standard standard de deviation level. That's what we we're trading against. But this is one using the probabilities controlling the risk that this is just a more passive way to trade these uh earnings events. Diane