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Does Fortinet's (FTNT) Strong Portfolio Make it Worth Buying?

Fortinet FTNT has been benefiting from the growing demand for integration of AI in Secure Networking and the strong deployment of security solutions.

Fortinet’s solutions are suitable for addressing the increasing cyber threats and the growing need for secure networks. Its latest next-generation firewall appliance is designed to provide top-tier security and networking performance, which is essential for modern campus infrastructure. These capabilities allow institutions to effectively manage and secure the increasing volume of data-rich traffic and cloud-based applications in campus settings.

Fortinet has updated its generative AI (GenAI) portfolio, including the industry's first generative AI IoT security assistant. With the cybersecurity sector facing a significant skill gap, GenAI aims to augment technical proficiency. FortiAI, the GenAI assistant, aids security and network operations teams by facilitating faster threat investigation and remediation, and simplifying network configuration and management through its intuitive interface.

This innovation addresses the industry's skill shortage by enabling individuals of varying expertise levels to engage using natural language.

Fortinet, Inc. Price and Consensus

Fortinet, Inc. Price and Consensus
Fortinet, Inc. Price and Consensus

Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote

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Fortinet’s strong client base, which includes the likes of FC Barcelona, Groupama and Stockholm School of Economics, is expected to drive sales growth in the near term.

Fortinet recently entered into a sponsorship agreement with FC Barcelona, through which it becomes Espai Barça's new Official Cybersecurity Partner for the next three seasons, until Jun 30, 2028. As part of the agreement, FC Barcelona will enable a secure digital environment for its Spotify Camp Nou facilities, leveraging Fortinet’s industry-leading Security Fabric platform, which will serve as a global reference for technological innovation in the world of sport and entertainment.

Groupama utilizes Fortinet’s FortiSOAR to automate responses to common attacks, improving security incident management and regulatory compliance. This enhances their overall security while supporting their digital transformation efforts. Meanwhile, the Stockholm School of Economics upgraded its network with a consolidated Fortinet platform, enhancing hybrid learning and securing digital capabilities.

Expanding Partner Base Aids Prospect

Fortinet ensures minimum service-level availability for its cloud-based subscription services, due to it’s robust partner base which includes public cloud providers like AWS, Azure, and Google Cloud, as well as co-location partners such as Equinix.

Fortinet Cloud Security delivers top-tier enterprise protection for Google Cloud environments. The Fortinet Security Fabric safeguards business workloads across on-premises, data centers, and cloud environments, offering layered security for cloud applications. Moreover, Fortinet's hybrid mesh firewalls integrate data center, branch, and cloud firewalls into a cohesive system, ensures protection for all its partners.

Its strong partner base, along with an expanding portfolio, is expected to boost Fortinet’s dominance in the cybersecurity space. For fiscal 2024, FTNT expects revenues in the range of $5.745-$5.845 billion and an operating margin of 26.5- 28%.

Service revenues are projected in the range of $3.94-$3.99 billion, indicating growth from Unified SASE and SecOps.

The Zacks Consensus Estimate for revenues in fiscal 2024 is pegged at $5.79 billion, suggesting growth of 9.17% year over year. The consensus estimate for earnings is pegged at $1.75 per share, indicating 7.36% year-over-year growth.

Stiff Competition Hurts Fortinet

Fortinet shares have gained 4.2% year to date, underperforming the Zacks Computer and Technology sector’s return of 16.5%.

It has been suffering from challenging macroeconomic conditions, including persistent inflation, in the near term and tough competition from Cisco Systems CSCO, Palo Alto Networks PANW and Check Point Software Technologies CHKP in the cybersecurity market. The market is expected to grow from $190.4 billion in 2023 to $298.5 billion by 2028 at a CAGR of 9.4%, according to a report by Markets and Markets.

Cisco Secure constitutes its extensive security product portfolio, delivering unparalleled effectiveness in safeguarding data. Riot Games and Cisco are expanding their partnership, making Cisco the Official Security Partner of League of Legends Esports. The collaboration aims to leverage Cisco’s solutions to better connect and protect one of the most renowned esports globally.

Palo Alto Networks and IBM have recently announced a partnership to deliver AI-powered security solutions, aiming to address the complex cybersecurity challenges posed by the expanding enterprise technology landscape.

Check Point Software recently enhanced its Web Application Firewall with a powerful API Discovery feature, reinforcing cloud asset protection. Their CloudGuard WAF, part of the Cloud Native Application Protection Platform, uses advanced machine learning for real-time threat detection and protection against zero-day attacks.

Conclusion

Fortinet currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A strong portfolio, along with an expanding partner base, surely reflects solid top-line growth potential over the long run. However, challenging macroeconomic conditions, including persistent inflation, may hamper growth prospects in the near term. Stiff competition in the cybersecurity market is also a headwind.

Fortinet’s valuation looks stretched at the current level, as reflected by the Value Score of D. Hence, it would be prudent for investors to wait for a better entry time.

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