Investing.com -- Mizuho analysts downgraded Fortinet (NASDAQ:FTNT) to Underperform from Neutral on Thursday, citing persistent growth challenges and concerns about the company's ability to meet future expectations.
"Our recent checks on FTNT were very mixed, with some enterprise-focused partners falling short of plan," Mizuho stated, adding that they are seeing "very limited adoption" of Fortinet's SASE solutions.
The firm notes that Fortinet's revenue growth has slowed compared to previous years.
The company saw revenue growth of 32% in 2022, but that has dropped to an estimated 10-11% for 2024. Similarly, billings growth has decelerated to low single-digits for 2024, down from mid-30s in 2022.
Mizuho believes that "consensus billings expectations for 2025E will be tough to beat" and expressed doubts about the timing of a firewall refresh cycle.
As a result, the analysts lowered their fourth-quarter billings forecast to 6.8% year-over-year growth, below consensus estimates.
Although Fortinet's stock recently reached an all-time high of $83 on October 11, the company faces competitive headwinds from rivals.
"Palo Alto Networks (NASDAQ:PANW, Outperform) and even Check Point Software (NASDAQ:CHKP, Neutral) appear to be showing relative strength," Mizuho noted, adding that some partners view Fortinet as "less well-positioned to benefit from vendor consolidation going forward."
One bright spot for Fortinet has been its profitability, as the company reported non-GAAP gross margins of 81.5% and operating margins of 35.1% in the second quarter—well above expectations.
However, Mizuho cautioned that maintaining this profitability will require significant investment to stay competitive in core markets and improve SASE adoption.
"We expect annual operating margins will likely be capped in the low 30s over the medium-term," the analysts concluded.
Mizuho maintained its price target of $68, reflecting Fortinet's valuation at a discount compared to its high-growth security peers.