By Sam Boughedda
Morgan Stanley analysts raised the firm's price target on Fortinet (NASDAQ:FTNT) to $71 from $66 in a note Thursday, maintaining an Overweight rating on the stock and laying out three reasons for their bullish stance into 2023.
"We think FTNT is a key battleground stock heading into 2023," they said. "As investors vigorously debate their ability to sustain growth now that peak firewall demand is behind us, comps remain difficult and growth in overall security spend slows next year (along with everything else)."
After slight misses in bookings in the last couple of quarters and incremental caution from recent security prints, Morgan Stanley generally believes investor expectations for next year are more reflective of the slowing macro risk versus the current consensus forecast.
"This should create a more favorable setup, in our view. As such, we are lowering our FY23 forecasts below consensus and model total billings up +16.5% YoY (vs +24% prior), product revenue +12% YoY (vs. +22% prior) and total revenue +21%," the analysts added.
The first reason the analysts gave for the firm's bullish stance on the stock heading into next year was its durable market share gains and ability to drive cost savings through consolidation of security and networking budgets. In addition, it is positive on Fortinet's ability to protect and expand margins based on a higher mix of more profitable, recurring services revenue as well as slowing headcount growth, and its significant share buyback and much lower stock-based comp compared to large cap software peers, making Fortinet look "favorable on every valuation metric, including now GAAP EPS."