On Monday, Barclays reaffirmed its Equal-weight rating on Fortinet (NASDAQ:), with a continued price target of $85.00.
The firm’s analysis suggests that Fortinet’s third-quarter billings could reach the higher end of the provided guidance range. This potential is attributed to gains in market share and a return to normal hardware patterns, while services billings remain sub-seasonal if mergers and acquisitions (M&A) are excluded, indicating possible upside.
The analyst anticipates that a strong performance in the third quarter will be reflected in Fortinet’s full-year 2024 billings guidance. Despite this, there’s a belief that the implied 27% year-over-year growth for the fourth quarter may be overly optimistic, given the stock’s recent strong performance which could heighten expectations.
A crucial detail to watch for is the fourth-quarter 2024 exit rate without the estimated $90 million duration benefit from the fourth quarter of 2023, which is projected to be around 12%, aligning with the firm’s 2025 forecasts.
Looking further ahead, mergers and acquisitions are expected to lower margins in the second half of 2024. However, the analyst points out that the gross margin outperformance observed in the second quarter could be maintained.
For fiscal year 2025, Barclays projects revenues to be lower than the consensus due to their services billings analysis and anticipates operating margins to be flat or slightly down, hovering around 30%. This is partly due to the anticipated dilutive impact of M&A activities.
Barclays also predicts that Fortinet’s upcoming analyst day will likely highlight the company’s financial framework, which adheres to the “Rule of 40.” This rule suggests that companies should aim for a combined growth rate and profit margin that exceeds 40%, with Fortinet expected to showcase over 10% growth and maintain margins above 30%.
In other recent news, the cybersecurity company, Fortinet, has been the subject of several analyst upgrades and adjustments. Rosenblatt Securities maintained a “Buy” rating and increased the price target from $72.00 to $85.00, citing Fortinet’s strong market position and robust firewall offerings.
TD Cowen echoed this positive stance, raising the stock’s price target to $90 from the previous $75, while maintaining a Buy rating. The firm highlighted Fortinet’s solid 3Q24 outlook and growth potential, driven by increasing operational technology and artificial intelligence requirements.
HSBC also raised its price target on Fortinet shares to $83.00, up from the previous target of $59.00, while retaining a Hold rating on the stock. The adjustment was made in recognition of Fortinet’s superior performance in maintaining and enhancing its profit margins compared to its competitors.
CFRA followed suit, maintaining a Buy rating while raising its price target from $73.00 to $84.00, based on a positive outlook for the company’s forward price-to-earnings multiple and an increased earnings per share estimate for 2025.
Citi increased its price target from $66.00 to $76.00, maintaining a Neutral rating, after a meeting with Fortinet’s CFO and CMO that increased the firm’s confidence in the company’s growth prospects.
Despite a recent data breach, Fortinet assured that less than 0.3% of its customers were affected and the data involved was limited. These are the recent developments in the cybersecurity company’s performance and outlook.
InvestingPro Insights
Fortinet’s financial metrics and market performance align with Barclays’ analysis, providing additional context to the company’s outlook. According to InvestingPro data, Fortinet boasts impressive gross profit margins of 78.09% for the last twelve months as of Q2 2024, supporting the analyst’s observation of potential margin outperformance. This is complemented by an InvestingPro Tip highlighting Fortinet’s “impressive gross profit margins.”
The company’s strong market position is reflected in its robust year-over-year revenue growth of 11.02% and a significant EBITDA growth of 21.79% over the same period. These figures underscore Fortinet’s potential to reach the higher end of its guidance range for third-quarter billings, as suggested by Barclays.
Investors should note that Fortinet is trading at a P/E ratio of 45.89, which an InvestingPro Tip describes as “trading at a high earnings multiple.” This valuation could be justified by the company’s strong performance, with a one-year price total return of 56.1% and a three-month return of 39.44%, indicating substantial investor confidence.
For those interested in a deeper analysis, InvestingPro offers 15 additional tips for Fortinet, providing a comprehensive view of the company’s financial health and market position.
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