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Investing.com - KeyBanc downgraded Fortinet (NASDAQ:FTNT), a $74 billion cybersecurity giant with impressive 81% gross margins, from Overweight to Sector Weight on Thursday, citing concerns about the company’s product refresh cycle and underlying revenue growth. According to InvestingPro data, Fortinet has maintained strong revenue growth of ~14% over the last twelve months.
The downgrade follows what KeyBanc described as a mixed second quarter and concerning comments from Fortinet management about the future refresh cycle. According to KeyBanc, Fortinet management indicated it has already progressed through 40-50% of the 2026 end-of-service refresh cohort while also reducing expectations for the 2027 refresh cohort. Despite these concerns, InvestingPro analysis shows the company maintains a GREAT financial health score, with particularly strong profitability metrics.
KeyBanc noted that the progression through the refresh cycle was more rapid than anticipated, while underlying product revenue growth excluding the refresh benefit was flat-to-down year-over-year in the first half of 2025, worse than expected.
The firm expressed concern that the refresh opportunity may not reach the $400-450 million figure Fortinet communicated at its November analyst day, as management has limited visibility into the likelihood of refresh from lower-end appliances.
KeyBanc sees a challenging outlook for Fortinet as the refresh tailwind diminishes in 2026, product revenue comparisons become more difficult, and underlying product growth appears to be declining. While trading at a P/E ratio of 39.4x, InvestingPro’s Fair Value analysis suggests the stock may be undervalued, with 12 additional exclusive insights available to subscribers through the comprehensive Pro Research Report.
In other recent news, Fortinet reported its second-quarter earnings for 2025, surpassing expectations with an earnings per share (EPS) of $0.64 compared to the forecast of $0.59. This represents an 8.47% surprise in EPS. The company also met revenue forecasts, reporting $1.63 billion. Despite these positive results, Fortinet’s stock experienced a significant drop in premarket trading, falling 18.91%. This reaction is attributed to investor concerns over future growth prospects and market conditions. These developments highlight the mixed sentiment surrounding Fortinet’s recent performance.
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