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Fortinet Surges 18.5% Since Q3 Results: Time to Buy the Stock?
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Fortinet's (FTNT - Free Report) impressive third-quarter 2024 results have sparked renewed investor interest, with the stock surging 18.5% post-earnings. The cybersecurity giant demonstrated remarkable financial discipline, achieving record gross margin and operating margin, with the latter increasing 830 basis points to more than 36%. Total revenue growth of 13% marks a significant milestone as the company returns to positive billings and product revenue growth.
Fortinet reported third-quarter 2024 non-GAAP earnings per share (EPS) of 63 cents, which beat the Zacks Consensus Estimate by 23.53%. The bottom line climbed 53.7% from the year-ago quarter’s earnings of 41 cents.
Post Earnings Share Price Movement
Image Source: Zacks Investment Research
Market Leadership in Unified Security Solutions
Fortinet is the only vendor offering all Secure Access Service Edge (SASE) functions in a single operating system and providing a unified networking and security stack on-premise and in the cloud. This allows FortiSASE to be deployed within minutes for our SD-WAN customers. The company's proprietary FortiASIC technology delivers 5-10x better performance than competitors while reducing the total cost of ownership and energy consumption – a compelling proposition for customers seeking efficiency and sustainability.
SASE and Security Operations Drive Growth
The company's Unified SASE business now represents 23% of total billings, showing strong momentum with security service edge billings growth of 220% and pipeline growth of 130%. Security Operations emerged as the fastest-growing pillar with 32% billings growth, now accounting for 10.5% of total business. These growth vectors demonstrate Fortinet's successful expansion beyond its traditional networking security roots.
Larger enterprises continued to drive expansion into Unified SASE and SecOps markets, with large and mid-enterprises representing 91% and 76% of SASE and SecOps billings, respectively.
Innovation and Infrastructure Investment
Fortinet's commitment to innovation is evident in its AI initiatives, with FortiAI now integrated across seven key solutions. The company's substantial infrastructure investment, including more than 3 million square feet of facilities, positions it for long-term cost advantages and enhanced security management capabilities. The recent acquisitions of Lacework and NextDLP expanded its addressable market by $20 billion.
Financial Outlook and Investment Thesis
The company's forward-looking guidance remains strong, with projected fourth-quarter revenue growth of 12% and full-year service revenue growth of 19%. With robust free cash flow margins of 38% and continued market share gains in a $284 billion total addressable market, Fortinet presents a compelling investment opportunity.
The Zacks Consensus Estimate for 2024 revenues is pegged at $5.88 billion, suggesting 10.89% year-over-year growth. The consensus estimate for earnings has moved north by 8.5% to $2.18 per share over the past 30 days.
Image Source: Zacks Investment Research
Can FTNT Stock Justify its Premium in a Competitive Market?
Skeptics caution that Fortinet's current valuation may be stretched, and the stock could be vulnerable to a correction if growth rates slow down or competition intensifies. Fortinet's main competitors are Palo Alto Networks (PANW - Free Report) , Cisco Systems (CSCO - Free Report) , Check Point Software Technologies (CHKP - Free Report) , CrowdStrike and Zscaler. Each of these companies has its own strengths and focus areas within cybersecurity.
Additionally, macroeconomic factors, such as potential economic slowdowns or shifts in corporate IT spending could impact Fortinet's growth trajectory. The company's ability to navigate these potential headwinds will be crucial in determining its stock performance in the coming months.
Valuation-wise, Fortinet's premium pricing is evident. Its forward 12-month price-to-sales (P/S) ratio of 11.74 is way ahead of the Zacks Internet Software industry average of 2.8. This elevated valuation suggests high growth expectations from investors but also implies increased risk. Fortinet will need to maintain its technological edge and continue delivering value to its customers to stay ahead of the curve.
FTNT’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
The ongoing digital transformation across industries continues to drive demand for comprehensive cybersecurity solutions. For investors seeking exposure to the cybersecurity sector, Fortinet's current position offers an attractive entry point. The combination of market leadership, technological innovation, and strong financial performance makes a compelling case for new investors to initiate positions. Existing shareholders should maintain their holdings, as the company's strategic initiatives and growing recurring revenue base suggest sustained long-term value creation potential. Fortinet currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Fortinet Surges 18.5% Since Q3 Results: Time to Buy the Stock?
Fortinet's (FTNT - Free Report) impressive third-quarter 2024 results have sparked renewed investor interest, with the stock surging 18.5% post-earnings. The cybersecurity giant demonstrated remarkable financial discipline, achieving record gross margin and operating margin, with the latter increasing 830 basis points to more than 36%. Total revenue growth of 13% marks a significant milestone as the company returns to positive billings and product revenue growth.
Fortinet reported third-quarter 2024 non-GAAP earnings per share (EPS) of 63 cents, which beat the Zacks Consensus Estimate by 23.53%. The bottom line climbed 53.7% from the year-ago quarter’s earnings of 41 cents.
Post Earnings Share Price Movement
Image Source: Zacks Investment Research
Market Leadership in Unified Security Solutions
Fortinet is the only vendor offering all Secure Access Service Edge (SASE) functions in a single operating system and providing a unified networking and security stack on-premise and in the cloud. This allows FortiSASE to be deployed within minutes for our SD-WAN customers. The company's proprietary FortiASIC technology delivers 5-10x better performance than competitors while reducing the total cost of ownership and energy consumption – a compelling proposition for customers seeking efficiency and sustainability.
SASE and Security Operations Drive Growth
The company's Unified SASE business now represents 23% of total billings, showing strong momentum with security service edge billings growth of 220% and pipeline growth of 130%. Security Operations emerged as the fastest-growing pillar with 32% billings growth, now accounting for 10.5% of total business. These growth vectors demonstrate Fortinet's successful expansion beyond its traditional networking security roots.
Larger enterprises continued to drive expansion into Unified SASE and SecOps markets, with large and mid-enterprises representing 91% and 76% of SASE and SecOps billings, respectively.
Innovation and Infrastructure Investment
Fortinet's commitment to innovation is evident in its AI initiatives, with FortiAI now integrated across seven key solutions. The company's substantial infrastructure investment, including more than 3 million square feet of facilities, positions it for long-term cost advantages and enhanced security management capabilities. The recent acquisitions of Lacework and NextDLP expanded its addressable market by $20 billion.
Financial Outlook and Investment Thesis
The company's forward-looking guidance remains strong, with projected fourth-quarter revenue growth of 12% and full-year service revenue growth of 19%. With robust free cash flow margins of 38% and continued market share gains in a $284 billion total addressable market, Fortinet presents a compelling investment opportunity.
The Zacks Consensus Estimate for 2024 revenues is pegged at $5.88 billion, suggesting 10.89% year-over-year growth. The consensus estimate for earnings has moved north by 8.5% to $2.18 per share over the past 30 days.
Image Source: Zacks Investment Research
Can FTNT Stock Justify its Premium in a Competitive Market?
Skeptics caution that Fortinet's current valuation may be stretched, and the stock could be vulnerable to a correction if growth rates slow down or competition intensifies. Fortinet's main competitors are Palo Alto Networks (PANW - Free Report) , Cisco Systems (CSCO - Free Report) , Check Point Software Technologies (CHKP - Free Report) , CrowdStrike and Zscaler. Each of these companies has its own strengths and focus areas within cybersecurity.
Additionally, macroeconomic factors, such as potential economic slowdowns or shifts in corporate IT spending could impact Fortinet's growth trajectory. The company's ability to navigate these potential headwinds will be crucial in determining its stock performance in the coming months.
Valuation-wise, Fortinet's premium pricing is evident. Its forward 12-month price-to-sales (P/S) ratio of 11.74 is way ahead of the Zacks Internet Software industry average of 2.8. This elevated valuation suggests high growth expectations from investors but also implies increased risk. Fortinet will need to maintain its technological edge and continue delivering value to its customers to stay ahead of the curve.
FTNT’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
The ongoing digital transformation across industries continues to drive demand for comprehensive cybersecurity solutions. For investors seeking exposure to the cybersecurity sector, Fortinet's current position offers an attractive entry point. The combination of market leadership, technological innovation, and strong financial performance makes a compelling case for new investors to initiate positions. Existing shareholders should maintain their holdings, as the company's strategic initiatives and growing recurring revenue base suggest sustained long-term value creation potential. Fortinet currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.