On Thursday, Barclays adjusted its outlook on Fortinet (NASDAQ:FTNT), a global leader in broad, integrated, and automated cybersecurity solutions. The firm's analyst has lowered the price target for Fortinet to $70.00 from the previous $75.00 while maintaining an Equalweight rating on the stock.
The revision comes as Fortinet approaches its second-quarter earnings report, with expectations that billings will align with guidance, suggesting a roughly 1% year-over-year decline. This forecast accounts for a challenging comparison due to an estimated $50 million backlog benefit that boosted the previous year's second-quarter figures. After adjustments, the implied bookings growth stands at about 2% year-over-year, although market checks have yielded mixed signals.
For the full year 2024, the analyst anticipates Fortinet to reaffirm its billings guidance on an organic basis, potentially including contributions from its recent acquisition of Lacework. The projection estimates a 10% year-over-year growth in bookings for the second half of 2024, pacing towards an 11% increase in billings growth for the fiscal year 2025. It is noted that these figures are below the consensus estimates for the industry.
In a strategic move this quarter, Fortinet began offering its Secure Access Service Edge (SASE) solution at no additional cost with FortiAP, which could influence the allocation of billings between Secure Networking and SASE. Additionally, the potential for an uplift in renewals is a point of interest, especially following some reports of vulnerabilities within the quarter. However, preliminary checks have not indicated significant impacts from these vulnerabilities.
Investors and analysts are keenly observing the potential for a surge in firewall refreshes and broader SASE adoption within Fortinet's customer base. These factors are anticipated to drive a more significant acceleration in billings in the latter half of 2024 and into fiscal year 2025. Despite this optimism, the current evidence does not strongly indicate an imminent uptick in refresh activities, and it is believed that it may take time for SASE to emerge as a substantial contributor to growth. Consequently, the price target has been adjusted to $70, based on a 25x multiple of the projected fiscal year 2025 free cash flow of approximately $2,061 million.
In other recent news, Fortinet, a cybersecurity solutions provider, has made significant strides in its strategic growth plan. The company recently announced its acquisition of Lacework, an AI-powered cloud security firm. This move is expected to bolster Fortinet's security offerings, particularly in the rapidly growing Secure Access Service Edge (SASE) market.
The Lacework acquisition is anticipated to further enhance Fortinet's vision of creating a comprehensive SASE platform, aligning with the company's growth strategy in the evolving cybersecurity landscape. Truist Securities maintained a Buy rating on Fortinet post-acquisition, demonstrating analyst support for the company's strategic direction.
In terms of financial performance, Fortinet has experienced mixed results in its first-quarter earnings. 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%.
Several analyst firms, including Piper Sandler, BMO Capital Markets, Truist Securities, Mizuho Securities, and UBS, have adjusted their price targets for Fortinet, maintaining neutral to positive ratings. These recent developments highlight Fortinet's ongoing efforts to navigate the dynamic cybersecurity market and deliver robust, innovative solutions to its customers.
InvestingPro Insights
As Fortinet (NASDAQ:FTNT) prepares its corporate sails to navigate the choppy waters of cybersecurity demand, its financial health and market performance offer key insights for investors. With a robust market capitalization of $45.13 billion, Fortinet stands out in the cybersecurity sector. Its impressive gross profit margin of 77.13% for the last twelve months as of Q1 2024 underscores the company's efficiency in maintaining profitability amidst operational costs.
InvestingPro Tips highlight that Fortinet holds more cash than debt on its balance sheet, providing the company with a solid liquidity position to support its strategic initiatives, such as the aggressive buyback of shares. Additionally, the fact that 26 analysts have revised their earnings upwards for the upcoming period signals a positive outlook on the company's financial prospects.
With a P/E ratio of 38.1 and a PEG ratio of 1.37 for the last twelve months as of Q1 2024, the valuation multiples suggest that investors are anticipating continued growth, albeit at a premium. For those considering diving deeper into Fortinet's investment potential, InvestingPro offers a treasure trove of additional tips, with 13 more available at https://www.investing.com/pro/FTNT. To unlock these insights, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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