On Wednesday, HSBC made an adjustment to its outlook on Fortinet (NASDAQ:FTNT), a company traded on NASDAQ under the ticker FTNT. The firm's analyst shifted the rating from Hold to Reduce, while also increasing the price target to $57 from the previous $49.
The downgrade was based on projections of a continued slowdown in Fortinet's top-line growth and operating margin erosion. HSBC expressed a cautious stance, anticipating that Fortinet will face challenges in reaching growth rates comparable to its historical level of over 25%. According to HSBC, Fortinet is expected to see a deceleration in revenue growth to 5.4% year-over-year in the first quarter of 2024, with a forecasted 8.7% increase for the full year 2024.
HSBC's revised estimates for 2024 predict the company's turnover to slow to a 10.6% year-over-year increase, reaching approximately $5.9 billion. The non-GAAP operating profit margin (OPM) is expected to contract by 0.7 percentage points to 27.7%, while non-GAAP earnings per share (EPS) are projected to rise by 12.9% year-over-year to $1.84.
Looking further ahead, for the year 2025, HSBC forecasts Fortinet's turnover to grow by 11.5% year-over-year to around $6.5 billion. However, the non-GAAP OPM is anticipated to shrink again, by an additional 0.7 percentage points to 27%, with non-GAAP EPS expected to increase by 10.9% year-over-year to $2.04. This outlook indicates a tempered expectation for the company's financial performance in the coming years.
InvestingPro Insights
Fortinet's financial health and market performance show a complex picture that balances HSBC's cautious outlook with several positive metrics. According to real-time data from InvestingPro, Fortinet has a robust gross profit margin of 76.44% for the last twelve months as of Q3 2023. This impressive margin underscores the company's ability to maintain profitability despite the anticipated slowdown in growth.
The company's revenue growth also remains strong, with a 26.22% increase over the last twelve months as of Q3 2023. This figure aligns with HSBC's observation of Fortinet historically achieving growth rates over 25%, although the bank predicts a deceleration in the future. Additionally, Fortinet's recent market performance has been notable, with a one-month price total return of 15.67% and a three-month return of 36.27%, reflecting investor confidence and a potentially undervalued stock price.
InvestingPro Tips for Fortinet highlight several key strengths: the company holds more cash than debt on its balance sheet, suggesting a solid financial position, and it trades at a low P/E ratio relative to near-term earnings growth, which might attract value investors seeking growth potential at a reasonable price. For those interested in deeper analysis, there are 16 additional tips listed on InvestingPro, which can be accessed with the coupon code SFY241 for an additional 10% off a 1-year InvestingPro+ subscription.
Overall, while HSBC has downgraded Fortinet and expects a slowdown, the company's strong profit margins, healthy revenue growth, and recent stock performance present a more nuanced perspective for potential investors.
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