Fortinet's Long-Term Growth Prospects Remain Strong Despite Q2 Challenges

Baird's Shrenik Kothari lowered their price target on Fortinet (NASDAQ: FTNT) by 9.7% from $93 to $84 on 2023/08/04. The analyst maintained their Buy rating on the stock.

Kothari summed up Fortinet's 2023/08/03 Q2 2023 earnings report as "a billings miss and a cut to management's growth expectations."

For the second quarter of 2023, Fortinet reported earnings per share (EPS) of $0.38, surpassing the Zacks Consensus Estimate of $0.34 and representing a 58.3% increase from Q2 2022's $0.24. However, the company's revenue of $1.29 billion fell short of the Zacks Consensus Estimate of $1.30 billion. Nonetheless, it marked a 25.5% improvement from Q2 2022's $1.03 billion.

The company attributed the slowdown in product revenues to deal-pushouts, with Kothari highlighting that contract-duration headwinds resulted in reduced billings' growth.

Fortinet's gross margin for the quarter stood at 77.9%, representing a year-over-year increase of 140 basis points. The operating margin also saw significant improvement, rising 210 basis points to reach 26.9%.

Looking ahead, Fortinet's management provided guidance for the third quarter and full year of 2023. For Q3 2023, the company expects revenues in the range of $1.315 billion to $1.375 billion, a gross margin of 75.5% to 76.5%, an operating margin of 24.5% to 25.5%, and an EPS of $0.35 to $0.37. For the full fiscal year 2023, Fortinet anticipates revenues between $5.35 billion and $5.45 billion, a gross margin of 75.25% to 76.25%, an operating margin of 25.25% to 26.25%, and an EPS of $1.49 to $1.53.

Chairman, CEO & Founder Ken Xie remains optimistic about Fortinet's future prospects, stating, "We remain well-positioned for strong long-term growth as companies increasingly look to consolidate vendors and point products."

Following the release of Fortinet's earnings report, several other analysts also updated their ratings and price targets for the stock. Morgan Stanley's Hamza Fodderwala lowered their price target by -4.8% to $84, while maintaining their Strong Buy rating. Wells Fargo's Andrew Nowinski reduced their price target by -5.6% to $90 and maintained their Strong Buy rating. Barclays's Saket Kalia lowered their price target by -17.4% to $86, but also maintained their Strong Buy rating.

According to data compiled by 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 will deliver earnings per share (EPS) of $0.96 for the upcoming year. If the analysts' predictions hold true, FTNT's next yearly EPS will be down by 22% compared to the previous year.

Since the release of FTNT's latest quarterly report on August 3, 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 this period, FTNT has lagged behind the S&P 500, which has seen an 8.8% increase.

Baird analyst Shrenik Kothari, who lowered the price target on FTNT, is ranked in the top 23% of Wall Street analysts by WallStreetZen. Kothari specializes in the Industrials and Technology sectors and has an average return of 6.6% with a 60.7% win rate.

Fortinet, Inc. provides comprehensive cybersecurity solutions globally. Its 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, and centralized network logging solutions. Fortinet serves customers in a wide range of industries, including telecommunications, technology, government, financial services, education, retail, manufacturing, and healthcare.

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