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On Thursday, Guggenheim reiterated its Neutral rating on Fortinet stock (NASDAQ:FTNT), highlighting a comprehensive overhaul of its financial model for the cybersecurity firm. The company, currently valued at $73.88 billion, has demonstrated impressive financial health with a "GREAT" rating according to InvestingPro metrics, supported by robust gross profit margins of 80.56%. The research firm has refined its forecasting capabilities by incorporating various elements such as Term License renewals, Subscription and Support, and the natural Product Hardware refresh cycle, which is projected on a five-year bell curve.
The updated model also accounts for new Perpetual License sales, new Term Licenses, and new Workload Product Hardware, along with the associated support for these products and new Subscription Annual Recurring Revenue (ARR). These enhancements aim to closely align with Fortinet’s historical performance and provide a more accurate prediction of the company’s financial future. With revenue growth of 12.27% over the last twelve months, Fortinet has shown strong momentum. However, Guggenheim notes that new business inputs remain an uncertain factor, though trends can offer some guidance. InvestingPro subscribers can access 13 additional key insights about Fortinet’s growth prospects and financial health.
Fortinet has also indicated a mandatory Hardware refresh, which the company expects will generate between $400 million and $450 million in product sales for the years 2026 and 2027, assuming normal customer churn and average pricing. Guggenheim has attempted to validate this forecast within its report.
Despite the increased confidence in Fortinet’s potential to demonstrate improved financial outcomes, the valuation of the company’s shares remains a point of discussion. Trading at a P/E ratio of 41.78x and an EV/EBITDA multiple of 38.14x, with analyst price targets ranging from $83 to $135, the stock appears to be fairly valued according to InvestingPro’s Fair Value analysis. Guggenheim believes that the stock is fairly valued at 14 times Enterprise Value/Next Twelve Months (EV/NTM) Recurring Revenue and 30 times EV/NTM Free Cash Flow (FCF), or 35 times including cash paid for share repurchases to offset Share-Based Compensation (SBC) dilution. The Neutral rating is sustained due to the current uncertainty in IT spending and the risk of Fortinet losing customers to competitors’ Secure Access Service Edge (SASE) and Security Service Edge (SSE (LON:SSE)) solutions.
In other recent news, Fortinet has been highlighted for its strong financial performance and strategic advancements in cybersecurity. Erste Group initiated coverage with a Buy rating, citing Fortinet’s impressive return on equity of 56% and projecting a substantial revenue increase for 2025, estimated between $6.7 and $6.9 billion. Fortinet’s robust profitability is further underscored by an anticipated high gross margin of approximately 80% and an operating margin ranging from 31% to 33%. Additionally, Citi raised Fortinet’s stock price target to $115 from $101, maintaining a Neutral rating, and noted the company’s strong end to 2024 with significant contributions from large deals and impressive operating profit margins.
Stephens also initiated coverage with an Equal Weight rating and a $108 price target, recognizing Fortinet’s market leadership and potential to benefit from secular growth trends in cybersecurity. Moreover, Fortinet has introduced new AI capabilities to its Security Fabric platform, enhancing protection against emerging threats and improving security operations. These developments aim to bolster Fortinet’s AI-powered Security Services, providing a more robust defense for customers.
The company’s initiatives extend to securing AI models and infrastructure against network-based threats, emphasizing data privacy and zero-trust access principles. These strategic moves and financial metrics position Fortinet as a notable player in the cybersecurity sector, attracting positive attention from various analyst firms.
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