On Friday, UBS adjusted its outlook on Fortinet (NASDAQ:FTNT), a global leader in broad, integrated, and automated cybersecurity solutions, by reducing the stock's price target to $69 from $76. The firm has decided to maintain a Neutral rating on the stock.
The adjustment follows Fortinet's first-quarter results, which presented a mixed picture. The company's billings fell short of expectations by 1%, while revenue saw a modest increase, primarily due to product sales. Fortinet also reported a strong operating margin of 28.5%, surpassing expectations by 2.5 percentage points, and a significant free cash flow (FCF) upside, attributed to robust fourth-quarter collections.
Despite the mixed results, management expressed a cautiously optimistic outlook regarding pipeline visibility and guidance. The company reiterated its calendar year 2024 billings growth guidance of 0-3% and modestly increased its revenue forecast. However, the firm noted the difficulty in predicting business outcomes, highlighting that Fortinet has missed billings expectations in three of the past four quarters.
UBS acknowledged that while Fortinet's financial numbers appear increasingly derisked and the stock price is becoming more attractive, the firm remains on the sidelines.
The analyst suggested that it may take time for substantial momentum to build with Fortinet's Secure Access Service Edge (SASE) and Security Operations (SecOps) products. Given the stock's valuation at low-20s CY25 enterprise value to free cash flow (EV/FCF) for low-double-digit growth, UBS views the shares as adequately valued at the current time.
InvestingPro Insights
Fortinet's (NASDAQ:FTNT) recent performance and UBS's updated outlook on the company's stock price provide a context where additional insights might be valuable for investors. According to real-time data from InvestingPro, Fortinet boasts a robust gross profit margin of 77.13% for the last twelve months as of Q1 2024. This impressive margin is indicative of the company's efficiency in managing its cost of goods sold and adds weight to the company's financial health.
The company is currently trading at a high earnings multiple, with a P/E ratio of 44.1 and an adjusted P/E ratio of 41.52 for the same period, signaling that investors may expect high future earnings growth. Furthermore, with a PEG ratio of 1.12, the stock's price may be aligned with its expected earnings growth, making it an interesting point of consideration for growth-oriented investors. Fortinet has also demonstrated a solid revenue growth of 14.2% over the last twelve months as of Q1 2024, which could be a reassuring sign for those concerned about the company's top-line performance.
InvestingPro Tips highlight that Fortinet's management has been actively buying back shares, which could be a signal of confidence in the company's future performance. Additionally, the company has been profitable over the last twelve months and analysts predict it will remain profitable this year. For investors seeking more insights, there are 12 additional InvestingPro Tips available, which can be accessed through the InvestingPro platform. To enrich your investment strategy with these tips, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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