Fortinet, IBM Partner Again, Ink Threat Management Deal

Fortinet Inc. (NASDAQ:FTNT) recently announced that it has partnered with IBM’s (NYSE:IBM) X-Force Threat Management Services, based on the principles of the National Institute of Science and Technology (NIST) Cybersecurity Framework.

Per the press release, “IBM Security has been a Fortinet Fabric-Ready partner since 2017.” The combination of Fortinet Security Fabric and IBM’s expertise in the cyber security domain is expected to be beneficial for the duo’s mutual customers.

The combination of integrated threat intelligence and automated response to threats is expected to meet the requirements of digital businesses. Additionally, Security Fabric helps businesses in proper resource allocation depending on the threats noticed across the enterprise.

Notably, with many of the IBM X-Force Threat Management Services partners already being members of Fortinet’s Fabric-Ready technology ecosystem, the deployment of solutions that deliver real-time intelligence along with optimized security tools will be easier.

Fortinet’s Robust Performance

According to industry analysis, Unified Threat Management (UTM) is believed to be one of the fastest growing segments in Network Security with high-single to low-double digits projected growth.

Given Fortinet’s sustained focus on enhancing its UTM portfolio through product development and acquisitions, we believe that the company will continue to increase its market share in the segment and retain its leadership position.

Notably, Fortinet’s stock has outperformed the industry in the last year. While the stock has gained 49.7%, the industry rallied 34.7% during the said time frame.

Fortinet’s diversified product portfolio for PCs, mobile and enterprise security along with its partnerships with Exodus Intelligence, Cisco ACI, NTT Communications and VMware NSX Partner Ecosystem are expected to be top-line boosters.

With such a portfolio, the company is anticipated to make the most of the growth opportunity in the cybersecurity market, which is expected to reach $231.94 billion in 2022 from $137.85 billion in 2017, per a recent report by MarketsandMarkets.

We believe Fortinet’s initiative to change its business model to a subscription-based service provider will drive the company’s bottom line in the long run. Subscription-based service is a high gross margin business (approximately 80%) compared with the hardware-centric model.

With more than 50% of the company’s revenues being generated from these services, this strategy is likely to drive the company’s bottom line performance going ahead.

Zacks Rank and Key Picks

Fortinet has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Paycom Software, Inc. (NYSE:PAYC) and Western Digital Corporation (NASDAQ:WDC) , both carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The expected long-term EPS growth rates for Paycom and Western Digital are 24.75% and 19%, respectively.

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