As the digital economy grows, so does digital crime. Data breaches are increasingly threatening digitized businesses. This also implies substantial growth opportunities for the cybersecurity market. At approximately 10% penetration of security solutions, the total opportunity amounts to a staggering $1.5 trillion to $2 trillion addressable market.
Cybersecurity company Fortinet, Inc. (FTNT) looks well-positioned to capitalize on the industry’s growth. The company provides broad, integrated, and automated cybersecurity solutions in several parts of the world. FTNT sells its security solutions to channel partners and directly to various customers.
The company recently announced that five new managed security service providers (MSSP) adopted Fortinet Secure SD-WAN for enhanced business outcomes and customer experiences. This should expand FTNT’s market presence.
Additionally, in the last quarter, FTNT surpassed the consensus EPS estimate by 20.6% and the consensus revenue estimate by 2.3%. However, the stock has declined 4.2% over the past three months and 2.7% over the past five days to close its last trading session at $47.86.
Here are the factors that could influence FTNT’s performance in the upcoming months:
For the fiscal third quarter that ended September 30, FTNT’s total revenue increased 32.6% year-over-year to $1.15 billion. Non-GAAP operating income rose 45.3% from the prior-year quarter to $324.90 million.
Non-GAAP net income attributable to FTNT and non-GAAP net income per share attributable to FTNT came in at $262.70 million and $0.33, up 58.3% and 65% from the prior-year period, respectively.
Favorable Analyst Estimates
The consensus EPS estimates of $0.39 and $0.28 for the current (ending December 2022) and next (ending March 2023) quarters indicate 56% and 47.4% year-over-year increases, respectively. The consensus revenue estimates for the same periods of $1.30 billion and $1.19 billion reflect 34.5% and 24.2% year-over-year rises.
Street EPS and revenue estimates for the current year (fiscal 2022) of $1.15 and $4.43 billion reflect improvements of 43.7% and 32.6% from the prior year, respectively. Its EPS is estimated to increase 23.4% per annum over the next five years.
FTNT’s trailing-12-month EBIT margin and net income margin of 20.06% and 18.12% are 202.9% and 458.2% higher than the industry averages of 6.62% and 3.25%, respectively. Its ROCE, ROTC, and ROTA of 307.20%, 39.93%, and 13.92% are significantly higher than the industry averages of 5%, 3.24%, and 1.52%, respectively.
POWR Ratings Reflect Promising Prospects
FTNT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FTNT has a B grade for Growth, in sync with its improving financials. The stock has a Sentiment and Quality grade of A, consistent with favorable analyst estimates and impressive profitability.
In the 22-stock Software – Security industry, it is ranked #1.
Click here to see the additional POWR Ratings for FTNT (Value, Momentum, and Stability).
View all the top stocks in the Software – Security industry here.
The rapid growth of the cybersecurity industry should help FTNT to grow. With Wall Street analysts expecting a 37.2% upside in the stock, it might be a solid investment in 2023.
How Does Fortinet, Inc. (FTNT) Stack up Against Its Peers?
While FTNT has an overall POWR Rating of B, one might consider looking at its industry peers, Check Point Software Technologies Ltd. (CHKP) and Radware Ltd. (RDWR), which also have an overall B (Buy) rating.
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FTNT shares were unchanged in premarket trading Thursday. Year-to-date, FTNT has declined -33.42%, versus a -19.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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