Fortinet Stock Forecast: Cybersecurity Leader

Fortinet Stock Forecast: On-premises software and data storage are becoming obsolete in the age of cloud computing.

Many businesses are making the transition gradually, and some have chosen to go all-in with cloud computing services. It’s obvious why. The benefits go beyond convenience and cost savings.

Organizations that have adopted the cloud computing model report faster time-to-market, increased process efficiency, and a reduction in operational costs and IT spending. Together, these improvements give companies an opportunity to grow faster and more profitably.

Of course, the transition to cloud computing isn’t without flaws. Anytime, anywhere access to business data and an Internet of Things (IoT) model gives cybercriminals more opportunities to breach business security measures. Some of the brands that historically led the industry in cybercrime prevention and detection have been unable to keep up with the changes.

Fortinet is one of the exceptions, thanks to innovative end-to-end cybersecurity solutions. Its rapid growth has placed the organization in the top five global security firms by market share, joining industry leaders like Cisco, Palo Alto, Check Point, and IBM.

For investors, the big questions are, can Fortinet [NASDAQ: FTNT] keep pace with changes to deliver advanced cybersecurity protection long-term? If so, will it be able to turn a strong profit along the way? What is the Fortinet stock forecast?

What Is Fortinet’s Cybersecurity Fabric?

Before mobile devices were the go-to point of access, companies kept their digital assets on-site. Basic security measures could protect against all but the most sophisticated cyberthreats. Data had defined boundaries, and cybersecurity firms essentially put a wall around the perimeter.

However, cloud computing and IoT models offer virtually unlimited access points. Cybersecurity measures must be able to flex and adapt to keep up.

Fortinet [NASDAQ: FTNT] doesn’t refer to its suite of cybersecurity solutions as a wall. Instead, it uses the term “Security Fabric”.

Security features cover and integrate with business systems to deliver end-to-end network security and data protection. The system features breach prevention driven by Artificial Intelligence (AI), and it is almost entirely automated, reducing the burden on IT support staff.

Fortinet’s platform can protect legacy infrastructure alongside cloud-based assets – a critical feature considering most companies are making their transition to the cloud in stages.

Effective hybrid solutions are uncommon, and most companies have been forced to combine multiple security platforms to achieve comprehensive protection. Unfortunately, this approach tends to leave security gaps that are more easily exploited by cybercriminals.

Fortinet’s ability to protect all digital assets has been the company’s main differentiating factor when it comes to winning clients. Some of the biggest organizations in the world are signing on with Fortinet [NASDAQ: FTNT].

In fact, second quarter reporting shows that contracts worth $1 million or more grew by 28 percent year over year, and the average of their total value increased 37 percent. However, what investors and analysts want to know is whether these big contracts are translating into big profits.

Fortinet Revenues & Earnings Soar 

Business leaders had nothing but good news during the second quarter earnings call, reporting revenue growth of 18 percent compared to the same period in 2018. Adjusted earnings per share were up 42 percent.

Roughly two-thirds of Fortinet’s revenues come from sales of services rather than product sales, which means a higher profit margin. The service segment is growing faster than the product side of the business, which promises further improvements in overall profitability.

For the six months ended June 30, 2019, product revenues were up 14 percent year over year, totaling $353 million. The gross profit margin for those revenues was 56.6 percent.

Service revenues were up 21 percent for the same period, which totaled $642 million. The gross profit margin on those revenues was 86.2 percent.

During the second quarter call, business leaders raised their projections for the third quarter. The company expects to see total revenue between $525 million and $540 million, with non-GAAP earnings per share between $0.55 and $0.57.

Fortinet projects revenue growth of approximately 17 percent for the full year, with totals coming in between $2.10 billion and $2.12 billion.

Non-GAAP earnings per share are expected to fall between $2.23 and $2.26 for the year. Business leaders expect service revenue to drive most of the growth, with this segment of the business increasing by about 19 percent.

Fortinet Stock Forecast: Is It A Buy?

Based on the numbers, Fortinet [NASDAQ: FTNT] looks like a buy – at least for the short-term – but investors and analysts want to know whether the company’s growth and profitability is sustainable before making the decision to buy.

One of the biggest concerns is whether and how continued trade disputes between the United States and China could impact the business. Analysts note that about 25 percent of Fortinet’s revenues come from the Asia Pacific region.

One notable example of Asia Pacific partnerships is Fortinet’s relationship with China’s massive e-commerce company, Alibaba. Disruptions in trade with this region could dramatically impact Fortinet’s revenues and subsequent profits.

During the second quarter call, Fortinet leaders tackled the trade war issue head on, reassuring investors and analysts that while the Asia Pacific region is important to Fortinet’s success, most relevant business comes from countries other than China. For example, Fortinet has strong business relationships in Taiwan, Japan, South Korea, Australia, and New Zealand.

With this in mind, Fortinet is a strong bet as cybersecurity becomes more and more critical to business operations.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.