By Sam Boughedda
BMO Capital analyst Keith Bachman upgraded Fortinet (NASDAQ:FTNT) to Outperform from Market Perform on Tuesday. The analyst raised the firm's price target on the stock to $350 from $325 on a like-for-like basis. However, given its recent 5-1 stock split, the target was moved to $70 per share.
In a note to clients, the analyst said the upgrade was driven by three key factors.
The first is BMO's preference of GARP over Growth software "for the balance of CY22. FTNT has an attractive FCF valuation and has amongst the highest quality FCF in our coverage universe. We believe the bear case for FTNT (and PANW and CHKP) is that firewall growth will hit an air pocket. Hence, if FTNT exceeds estimates this year and meets or modestly exceeds growth expectations next year, we think the shares will move higher," wrote Bachman.
The analyst also pointed to the firm's belief that security will remain amongst the most resilient parts of IT spending during a recession.
"We believe that security will remain a priority within IT spend in CY22 and beyond. In addition, if a recession occurs, which seems increasingly likely, we believe security spending will remain resilient. Cyberattacks will not slow during a recession, and given the elevated threat landscape, we think robust security capabilities are increasingly viewed as a necessity," he added.
The final factor is BMO's belief that the company can "sustain 20%+ rev/billing growth and high-30% FCF margins through CY23. "FTNT offers a broad and growing portfolio that can drive billings growth of greater than 20% y/y over the next several years, driven by Fabric and FortiGate billings," said Bachman.