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Investing.com - Morgan Stanley (NYSE:MS) downgraded Fortinet (NASDAQ:FTNT) from Overweight to Equalweight on Thursday, while significantly reducing its price target from $110.00 to $78.00. The cybersecurity company, which maintains impressive gross profit margins of 81.3% and holds more cash than debt on its balance sheet, has seen its stock rise 38% over the past year despite recent challenges.
The downgrade reflects what Morgan Stanley describes as a "meaningful reset of expectations" for Fortinet’s firewall refresh cycle, prompting the firm to revise its projections downward.
Morgan Stanley cited "lowered confidence in the management team" as an additional factor that would likely constrain Fortinet’s valuation multiple in the near term.
The new $78 price target represents 22x EV/2026e FCF, down from the previous multiple of 29x, with the firm applying a 20% discount to growth-adjusted FCF multiples for security software companies to account for the "penalty box" Fortinet will operate in for the next several quarters.
Morgan Stanley identified several risks to its price target, including macroeconomic conditions, potential delays in the firewall refresh cycle, and the possibility of weaker attachment rates for new products.
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 forecasted $0.59. The company also met revenue forecasts, achieving $1.63 billion. Despite these positive financial results, investor concerns about future growth prospects were evident. Piper Sandler downgraded Fortinet from Overweight to Neutral, citing concerns over the company’s processing of 40-50% of its 2026 renewal cohort, which may affect its growth trajectory. Additionally, KeyBanc downgraded Fortinet to Sector Weight, pointing to issues with the company’s product refresh cycle and underlying revenue growth. KeyBanc noted that Fortinet has already moved through a significant portion of its 2026 end-of-service refresh cohort and has reduced expectations for 2027. These developments reflect ongoing apprehensions about Fortinet’s future performance.
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