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Fortinet: An Undervalued Cybersecurity Stock Worth Owning

Fortinet Inc logo displayed on mobile phone hidden in jeans pocket

Key Points

  • Fortinet is a leading cybersecurity provider specializing in unified, secure access service edge (SASE), which combines security-as-a-service (SaaS) and network functions through the cloud.
  • Fortinet’s large clients include Microsoft, Amazon, and Oracle.
  • Fortinet beat Q1 2024 EPS estimates by 5 cents and raised full-year 2024 EPS and revenue guidance.
  • 5 stocks we like better than Fortinet.

Fortinet Today

Fortinet, Inc. stock logo
FTNTFTNT 90-day performance
Fortinet
$97.19 +2.34 (+2.47%)
(As of 12/20/2024 05:40 PM ET)
52-Week Range
$54.57
$100.59
P/E Ratio
49.09
Price Target
$92.77

Leading cybersecurity provider Fortinet Inc. NASDAQ: FTNT stock has been lagging behind its peers and the benchmark indexes, trading up just 3.8% year-to-date (YTD). The company offers security-as-a-service (SaaS) through the cloud, primarily billing through a subscription model. The end of its growth normalization cycle may be near. Fortinet has over 650,000 customers, including Alibaba Group Holdings Ltd. NYSE: BABA Alibaba Cloud, Oracle Co. NYSE: ORCL, Amazon.com Inc. NASDAQ: AMZN AWS and Microsoft Co. NASDAQ: MSFT Azure.

Fortinet operates in the computer and technology sector and competes with cybersecurity companies like Palo Alto Networks NASDAQ: PANW, Zscaler Inc. NASDAQ: ZS and Crowdstrike Holdings Inc. NASDAQ: CRWD.

Fortinet: Leading the SASE Segment of Cybersecurity

Fortinet is a leader in Secure Access Service Edge (SASE), which utilizes a cloud architecture model that combines SaaS and network functions. These are delivered through the cloud as a single service. Being on the cloud enables security capabilities that let remote and work-from-anywhere workers use secure web gateway (SWG),  firewalls, zero-trust-network-access (ZTNA), and more threat detection features. Fortinet is heavily invested in artificial intelligence (AI) across its various cybersecurity functions, including threat detection, analysis, and response. SASE enables flexibility and agility for an organization's workforce while keeping its infrastructure secure.

Fortinet FTNT stock chart

FTNT Stock Attempts to Break Out of a Bearish Descending Triangle Pattern

The daily candlestick chart for FTNT is attempting to break out of a descending triangle pattern. The descending trendline started at $65.26 on May 2, 2024. The bounce attempts peaked at the lower highs against the flat-bottom lower trendline at $57.84. The breakout attempt failed at $60.40 on June 17, 2024. The second breakout attempt formed on June 27, 2024, as shares surged through the $59.39 descending triangle. The relative strength index (RSI) bounced to the 54-band. Pullback support levels are at $59.00, $57.00, $53.93, and $50.37.  

Fortinet's Earnings Beat: Q1 2024 Financial Highlights

Fortinet reported Q1 2024 EPS of 43 cents, beating consensus estimates by 5 cents. Revenues grew 7.2% YoY to $1.35 billion, beating $1.34 billion consensus estimates. Non-GAAP operating margin was 28.5%. Cash flow from operations was $839 million, and free cash flow was $609 million. Cash flow from operations rose to $830.4 million in Q1 2024, up from $677.5 million in Q1 2023. Free cash flow fell to $608.5 million in Q1 2024 from $647.2 million in the year-ago period.

Clarifying Fortinet’s Revenue Breakdown

Fortinet's total billings decreased by 6.4% to $1.41 billion. Billings are the total value of invoices issued to customers for subscriptions in the quarter. Revenues are actually recognized when the service is delivered. Service revenue, including subscriptions, maintenance and support, and additional professional services, rose 24% YoY to $944 million. Product revenue, which consists primarily of hardware, fell 18.3% YoY to $408.9 million.

Deferred revenue grew 18.6% YoY to $5.79 billion. This represents monies received for products or services to be delivered, which could include prepaid subscriptions or services. While it’s initially a liability since Fortinet still has to deliver the product or services, it also serves as a predictable forecast of future revenue.

Fortinet Issues Mixed Guidance Forecasts

For Q2 2024, the company issued in-line EPS guidance of 39 cents to 41 cents versus 39 cents consensus estimates. Q2 revenues are expected between $1.375 million and $1.435 million versus $1.39 billion. Billing is expected between $1.490 billion and $1.550 billion. Non-GAAP gross margin is expected between 76.5% and 77.5%. Non-GAAP operating margin is expected between 25.75% and 26.75%.

Fortinet MarketRank™ Stock Analysis

Overall MarketRank™
84th Percentile
Analyst Rating
Hold
Upside/Downside
4.5% Downside
Short Interest Level
Healthy
Dividend Strength
N/A
Environmental Score
-0.69
News Sentiment
0.68mentions of Fortinet in the last 14 days
Insider Trading
Selling Shares
Proj. Earnings Growth
3.61%
See Full Analysis

For full-year 2024, Fortinet raised its EPS guidance to $1.73 to $1.79, up from its previous forecast of $1.65 to $1.70, versus $1.70 consensus estimates. Full-year 2024 revenues are expected between $5.715 billion and $5.815 billion versus $5.78 billion.

Fortinet Founder, Chairman and CEO Ken Xie commented, "We believe our Unified SASE offering is the most comprehensive in the industry, and we are well-positioned to lead in our three core growth areas by leveraging our expertise in converging networking and security, our history of AI innovation, and our ability to integrate products across our FortiOS operating system.”

Fortinet analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $70.03 implies a 16.7% upside.

Should you invest $1,000 in Fortinet right now?

Before you consider Fortinet, you'll want to hear this.

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Jea Yu
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Jea Yu

Contributing Author

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Fortinet (FTNT)
4.2217 of 5 stars
$97.19+2.5%N/A49.09Hold$92.77
Alibaba Group (BABA)
4.8753 of 5 stars
$82.28-2.4%1.19%16.69Moderate Buy$114.07
Oracle (ORCL)
4.5309 of 5 stars
$169.66+0.5%0.94%41.48Moderate Buy$181.48
Microsoft (MSFT)
4.8575 of 5 stars
$436.60-0.1%0.76%36.02Moderate Buy$508.46
Palo Alto Networks (PANW)
4.5341 of 5 stars
$186.78-1.4%N/A24.32Moderate Buy$201.40
CrowdStrike (CRWD)
4.1643 of 5 stars
$362.29+3.2%N/A710.39Moderate Buy$361.25
Zscaler (ZS)
4.2535 of 5 stars
$187.38+2.3%N/A-749.52Moderate Buy$224.84
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