On Monday, Rosenblatt Securities adjusted its outlook on shares of Fortinet Inc. (NASDAQ:FTNT), a global leader in broad, integrated, and automated cybersecurity solutions. The firm's analyst has revised the price target downward to $68 from the previous $85, while still holding a Buy rating on the stock.
The adjustment comes ahead of Fortinet's second-quarter earnings report, scheduled for August 6th. The analyst's evaluation suggests concerns based on channel checks, indicating that some sales partners did not meet their targets, despite selling a significant number of access points and switches. This sales weakness is reportedly focused in the Value-Added Reseller (VAR) channel, and the telecom market is also described as sluggish.
Moreover, the firm has noted a turnover of channel managers at Fortinet, which could potentially disrupt pipeline generation and deal closures in future quarters. Despite Fortinet's aggressive promotion of its Unified Secure Access Service Edge (SASE) platform, the analyst's discussions imply that this product is not yet gaining significant traction in the near term. The SASE platform's impact on revenue is expected to materialize, but likely not for several quarters.
Given these observations, Rosenblatt has expressed concerns that the current consensus estimates for Fortinet's Q2, as well as fiscal years 2024 and 2025, may be overly optimistic. Consequently, the firm has revised its forecast for Fortinet's billings and revenue downwards by 1% to 8.5% for FY24 and by 11% to 12% for FY25, from previous estimates of 1.6% to 9% and 12% to 13%, respectively.
The analyst's statement concluded with a reiteration of the Buy rating but with a lower price target, reflecting the adjusted expectations for Fortinet's financial performance in the near to medium term.
In other recent news, Fortinet has seen a series of developments that have impacted its financial performance and strategic direction. The company has faced a downgrade from Guggenheim from a Buy to a Neutral rating, following three consecutive quarters of not meeting or lowering its financial targets. This downgrade comes alongside analyst adjustments from Barclays (LON:BARC), Piper Sandler, BMO Capital Markets, and Truist Securities, all of which have reduced their price targets for Fortinet to $70, maintaining their respective ratings.
In addition to these financial adjustments, Fortinet has announced its acquisition of Lacework, an AI-powered cloud security firm. This move is expected to enhance Fortinet's security offerings, particularly in the growing Secure Access Service Edge (SASE) market. The acquisition is anticipated to close in the second half of 2024, subject to regulatory approvals and customary closing conditions.
Despite a modest shortfall in billings and a lower forecast for the second quarter, Fortinet's SASE offering is gaining traction, evidenced by a notable increase in its mix to 24% and a year-over-year pipeline growth of 45%. Truist Securities has maintained a Buy rating on Fortinet post-acquisition, demonstrating analyst support for the company's strategic direction. These are the recent developments for Fortinet.
InvestingPro Insights
As Fortinet Inc. (NASDAQ:FTNT) approaches its second-quarter earnings report, investors may find additional context in the latest metrics and insights from InvestingPro. The company's market capitalization stands at a robust $43.17 billion, indicating its substantial presence in the cybersecurity sector. Fortinet's price-to-earnings (P/E) ratio is currently at 36.38, suggesting that the market has high expectations for future earnings growth, even though it trades at a high multiple relative to near-term growth projections.
One of the key strengths of Fortinet is its impressive gross profit margin, which, as of the last twelve months ending Q1 2024, is at 77.13%. This underlines the company's efficiency in managing its cost of goods sold and its ability to retain a significant portion of its revenue as gross profit. Additionally, InvestingPro Tips highlight Fortinet's strong balance sheet, with more cash than debt, and the fact that management has been actively buying back shares, which could be a sign of confidence in the company's value.
Investors considering Fortinet's stock will find a wealth of additional insights on the InvestingPro platform, including a total of 15 InvestingPro Tips that could help in making a more informed investment decision. As the company navigates the challenges identified by Rosenblatt Securities, these data points and tips offer a comprehensive look at both the risks and the potential that Fortinet holds.
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