Merrill Lynch analysts provided their two cents on earnings from cyber security firm Palo Alto Networks Inc (NYSE:PANW) and offshore drilling company Seadrill Ltd (NYSE:SDRL). While one analyst believes Palo Alto will prevail despite weaker than expected guidance, the other predicts continued rough waters for Seadrill due to high debt and demand challenges.

Palo Alto Networks Inc

Analyst Tal Liani of Merrill Lynch commented on Palo Alto following the firm’s 3Q:16 earnings last week. The company posted revenues of $345.8 million, representing a 48% y/y increase, which beat analysts’ expectations by $6.3 million. Earnings per share came to $0.42, one cent below expectations due to higher Opex, and guidance missed by a hair.

For the next quarter the company estimated earnings of $0.48 to $0.50 per share and revenues of $386-$389 million. Management attributed this lukewarm guidance to “a weak environment, longer sales cycles and a back-end loaded quarter,” increasing days sales outstanding (DSO). Other negative elements of this quarter which influenced guidance include seasonality and a sequential decline in its APAC and EMEA regions, caused by “macro factors.” Management specifically pointed to China’s weak economic environment as the main culprit for this decline.

Despite slightly weak guidance, the analyst notes that “key growth indicators remain impressively strong.” Liani highlights that services increased 63% y/y with an increase in modules sales and over 10k paying customers for WildFire. Similarly, deferred revenues increased 77% y/y due to a shift to longer term contracts and an increase in subscription revenues. Furthermore, the analyst highlights strong gross margins and a 95% y/y increase in FCF. The analyst does not believe that guidance will impact overall growth, noting that “the company continues to growth at healthy absolute levels,” predicting growth in both product and services. According to the analyst, Palo Alto’s strengths outweigh its weaknesses. He explains, “We continue to favor the business model, the increase in services and repeat business, and the company’s effective go-to-market strategy.”

The analyst reiterates a Buy rating on the stock but lowers his price target from $210 to $178 to due “guidance challenges.”

According to TipRanks, out of all the analysts who have rated the company in the past 3 months, 88% gave a Buy rating while 12% remain on the sidelines. The average 12-month price target for the stock is $186.91, marking a 44% upside from where shares last closed.

Seadrill Ltd

Analyst Fiona Maclean of Merrill Lynch offered her insights on Seadrill after the company posted 1Q:16 earnings last week. Revenues of $891 million were in line with expectations but margin capture was better than expected due to the company’s cost cutting measures. These efforts resulted in EBITDA of $523 million, 15% above consensus, 50% margin, and EBIT of $323 million, 20% above consensus estimates. However, the analyst points out that due to increased expenses and taxes, net income for the quarter came to $74 million, missing consensus expectations by a whopping 60%.

The analyst highlights Seadrill’s tough financial environment, marked by backlog, debt, and demand struggles. She explains, “The backlog declined again, down 14% QoQ to US$9.1bn, hurt by the continued lack of demand for deepwater drilling.” More concerning is the company’s $9.4 billion debt, although the analyst notes that “cost cutting and cash preservation mode” should benefit the company this year. Seadrill is starting to see the results of these efforts, targeting $305 billion in 2016. The company has prioritized debt reduction and plans to announce a plan sometime in 2016. However, the analyst predicts tough roads ahead. She explains, “While it is clearly a positive that Seadrill’s focus on cost cutting is working, they can only watch the continuing decline in demand for both floaters and jackups, which may not improve until 2018.”

In order for demand to return to previous levels, the company stated that oil prices must increase and stabilize, especially due to its excess capacity. As a result, the analyst predicts additional near-term challenges for the company. She states, “This weakness will likely lead to even more delays in deliveries of the new builds Seadrill has at various yards and additional contract renegotiations on existing rigs.”

Due to weak earnings, the analyst has reduced her earnings forecast by 22% for 17E and believes declines should continue into 2018. In order for her bearish outlook to change, the analyst believes the entire supply/demand conditions for oil must change as well. She states, “Seadrill’s shares are unlikely to see a firm rerating until we have better indications that demand for drilling is going to improve and the supply side starts to reshape.”

The analyst reiterates her Underperform rating on the company with a $1.70 price target.

According to TipRanks, all 3 analysts who have rated the company in the past 3 months gave a Sell rating. The average 12-month price target for the stock is $1.35, marking a 59% downside from where shares last closed.