Fortinet Downgraded to Hold as Analysts Cite Disappointing Q2 Earnings

TD Cowen's Shaul Eyal downgraded their rating on Fortinet (NASDAQ: FTNT) from Buy to Hold on August 4th, 2023. The analyst also lowered their price target by 22.2% from $90 to $70.

In a note to investors, Eyal cited Fortinet's Q2 2023 earnings report, which disappointed due to missed estimates and indications of a more normalized spending environment. Eyal stated, "Fortinet could be facing a market digestion period, capping its over 20% year-over-year growth."

For the second quarter, Fortinet reported earnings per share (EPS) of $0.38, surpassing the Zacks Consensus Estimate of $0.34 and marking a significant increase from Q2 2022's $0.24. Revenue came in at $1.29 billion, slightly below the Zacks Consensus Estimate of $1.30 billion but up 25.5% from the previous year.

Looking ahead, Fortinet management provided guidance for Q3 2023 and the full fiscal year. They expect Q3 revenues to range from $1.315 billion to $1.375 billion, with a gross margin of 75.5% to 76.5% and an operating margin of 24.5% to 25.5%. For the full fiscal year, they anticipate revenues of $5.35 billion to $5.45 billion, a gross margin of 75.25% to 76.25%, and an operating margin of 25.25% to 26.25%.

Chairman, CEO & Founder Ken Xie expressed confidence in Fortinet's long-term growth prospects, highlighting the company's position as a leader in cybersecurity and secure networking. Xie emphasized their focus on key growth markets, including Secure Networking, Consolidated Cybersecurity Fabric, Hybrid Cloud Security, and Operational Technology, which have a combined total addressable market of $122 billion in 2023.

In addition to TD Cowen's rating downgrade, several other analysts also adjusted their price targets for FTNT on August 4th, 2023. Baird's Shrenik Kothari lowered their price target by 9.7% to $84 and maintained a Buy rating. Morgan Stanley's Hamza Fodderwala reduced their price target by 4.8% to $80 while maintaining a Strong Buy rating. Wells Fargo's Andrew Nowinski lowered their price target by 5.6% to $85 and maintained a Strong Buy rating.

According to WallStreetZen, 73.3% of top-rated analysts currently rate FTNT as a Strong Buy or Buy, while 26.7% see it as a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that FTNT's next fiscal year will deliver earnings per share (EPS) of $0.96. This would represent a 22% decrease compared to the previous year.

Since Fortinet's latest quarterly report on August 3rd, 2023, the stock price has declined by 25.1%. However, on a year-over-year basis, the stock is still up by 7.9%. During the same period, FTNT has underperformed the S&P 500, which has seen an 8.8% increase.

Fortinet, Inc. provides comprehensive cybersecurity solutions globally. Their offerings include hardware and software licenses for various security and networking functions, such as firewall, intrusion prevention, anti-malware, virtual private network, and more. The company also provides secure switching, wireless networking, endpoint protection, and multi-factor authentication solutions. Fortinet serves customers in various industries, including telecommunications, technology, government, financial services, education, retail, manufacturing, and healthcare.

TD Cowen analyst Shaul Eyal is ranked in the top 7% of Wall Street analysts by WallStreetZen, specializing in the Technology and Industrials sectors. They have an average return of 17.5% and a win rate of 58.9%.

Want to get in touch? Email us at news@wallstreetzen.com.

WallStreetZen and Don Francis do not hold any positions in the companies mentioned in this article. The information and statistics provided herein are presented for general informational purposes only and may not be accurate, complete, or up-to-date. It should not be interpreted as a recommendation to buy or sell any stocks and should not be solely relied upon for making investment decisions. It does not take into account your financial situation or risk profile. All investors should conduct their own investment due diligence before buying a stock. WallStreetZen expressly disclaims any liability for the accuracy, reliability, or completeness of the analysts' information, price targets, ratings, or opinions.