Rosenblatt downgrades Fortinet stock rating to Neutral on firewall refresh concerns

Published 07/08/2025, 12:52
Rosenblatt downgrades Fortinet stock rating to Neutral on firewall refresh concerns

Investing.com - Rosenblatt downgraded Fortinet (NASDAQ:FTNT) from Buy to Neutral on Thursday, lowering its price target to $85 from $125 despite the cybersecurity company’s solid second-quarter results. The company maintains impressive gross profit margins of 81% and has generated over $2 billion in EBITDA over the last twelve months.

The downgrade comes after Fortinet shares dropped approximately 17% in after-hours trading following its earnings report, reflecting investor caution despite the company raising its full-year 2025 revenue, billings, and profit guidance. According to InvestingPro analysis, the stock is currently trading below its Fair Value, with a P/E ratio of 39.4x and strong return on assets of 20.8%.

Rosenblatt cited concerns around the firewall refresh cycle, noting that 40-50% of the 650,000 eligible devices have already been upgraded, representing $180-$255 million of a $450 million opportunity. This progress raised worries that much of the near-term growth catalyst may be behind the company.

The research firm expects Fortinet stock to "trade sideways for a while" until the company can demonstrate further execution on efforts to drive incremental growth, despite management’s confidence and ongoing strength in cross- and up-selling.

Fortinet did post robust growth in some segments, with Secure Access Service Edge (SASE) and Security Operations (SecOps) billings increasing 21% and 31% year-over-year, respectively, and the company reaffirmed its goal to achieve the Rule of 45.

In other recent news, Fortinet’s second-quarter earnings report revealed impressive results, with billings growing 15.4% year-over-year and revenue increasing by 13.6% compared to the previous year. Product revenue also saw a notable rise of 12.6%, with margins and earnings per share surpassing both Stifel and consensus estimates. Despite these strong figures, multiple analyst firms have adjusted their outlooks. TD Cowen downgraded Fortinet’s rating from Buy to Hold, citing concerns about uncertainty in core appliance growth after the current refresh cycle. Stifel, UBS, and Jefferies have all lowered their price targets on Fortinet to $85, $90, and $85, respectively, while maintaining Hold or Neutral ratings. Evercore ISI also reduced its price target to $78, noting a significant revision in Fortinet’s business outlook regarding its firewall refresh cycle. The company disclosed that 40%-50% of the anticipated refresh cycle is already complete, contrasting with the previous 20% completion rate stated in the first quarter. These developments highlight a cautious stance among analysts despite Fortinet’s strong quarterly performance.

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