Sunnyvale, Calif.-based Fortinet, Inc. (FTNT) and NortonLifeLock Inc. (NLOK) in Mountain View, Calif. are two of the most prominent integrated and automated cyber safety solutions providers, operating in the United States, Europe and internationally. FTNT provides FortiSwitch, FortiAnalyzer, FortiToken and FortiAuthenticator and various other security and networking functions and anti-spam solutions. NLOK offers Norton Secure VPN solution, Norton 360, Privacy Monitor Assistant and LifeLock identity theft protection solution to its customers.
As the administrative paradigm shift toward digitization continues worldwide, the importance of strong authentication methods and cloud-based cybersecurity solutions has increased substantially in recent years. In fact, an increased reliance on remote servers and web-based applications has heightened the risk of cyberattacks and cloud vulnerability. As such, it is no surprise that organizations and government agencies are now prioritizing advanced cybersecurity measures for protection against ransomware attacks and malicious hacking. We believe that this need should continue propelling the demand for cyber safety and security solutions offered by FTNT and NLOK.
FTNT has gained 66.3% so far this year, while NLOK has returned 30.1% over the same period. Also, in terms of past three months’ performance, FTNT is the clear winner with 35.2% gains versus NLOK’s 25.1% returns. But which of these stocks is a better pick now? Let’s find out.
This month, four new global service providers, including CommandLink, DNA, Syringa Networks and TIM (Telecom Italia), selected FTNT’s enhanced SD-WAN offerings to grow their customer offerings and security services. FTNT’s industry-leading secure SD-WAN solution should enable it to meet the growing secure network needs of global organizations.
Also this month, FTNT introduced FortiMonitor and FortiAIOps to expand its Fabric Management Center and extend network monitoring to third-party network infrastructures. These two new offerings should allow FTNT to offer an improved digital experience and operational outcomes to its customers and simply their network operations.
On June 15, NLOK introduced new privacy features, including Safe Connections, Kill Switch and Split Tunneling, to enable users to store their personal information more securely and take control of information about them that is shared online. Also this month, the company launched Norton Crypto to allow users to mine cryptocurrency through its Norton 360 platform safely and easily. These innovative developments should strengthen NLOK’s position in the cybersecurity industry and bolster its growth.
Recent Financial Results
During the first quarter, ended March 31, 2021, FTNT’s total revenue increased 23% year-over-year to $710.3 million. Its product revenue was $240.7 million, reflecting 25% growth year-over-year. Also, its non-GAAP operating margin rose 210 basis points from its year-ago value to 24.5%. However, the company’s cash flow from operations came in at $315.9 million, versus $319.4 million in the prior-year period. Its operating expenses rose 30% year-over-year to $432.1 million over this period.
In its fiscal fourth quarter, ended April 2, 2021, NLOK reported $677 million in revenues, representing an 11% increase year-over-year. The company’s non-GAAP operating margin rose 900 basis points from the prior-year quarter to 50.5%. NLOK’s non-GAAP net income was $234 million, compared to $167 million for the same quarter in 2020. Also, its EPS increased 53.8% year-over-year to $0.40 over this period.
Past and Expected Financial Performance
FTNT’s EBIT has increased at a 56.6% CAGR over the past three years. In comparison, NLOK’s EBIT grew at a 68.6% annualized rate over this period. Also, FTNT’s levered free cash flow has increased at a 29.7% CAGR over the past three years, while the CAGR of NLOK’s levered free cash flow is 475.2% over this period.
The Street expects FTNT’s revenue to rise 20.8% in the current quarter, ending June 2021, and 19.8% in 2021. The consensus EPS estimates indicate an 11.6% increase in the current year and 16.3% in 2022. In comparison, analysts expect NLOK’s revenue to increase 14.2% in the current quarter and 9.6% in its fiscal year 2021. Also, the company’s EPS is estimated to increase 18.8% in the current year and 12.3% next year.
FTNT’s trailing-12-month revenue is 1.1 times NLOK’s. However, NLOK is more profitable, with an 85.8% gross profit margin versus FTNT’s 78.1%.
Also, NLOK’s 39.2% levered free cash flow margin compares favorably with FTNT’s 26.2%.
In terms of forward non-GAAP PEG, FTNT is currently trading at 4.19x, which is 85.4% higher than NLOK, which is currently trading at 2.26x. Also, its 13.80x trailing-12-month EV/Sales is 91.4% higher than NLOK’s 7.21x. Furthermore, FTNT’s 14.40 trailing-12-month Price/Sales is 131.1% higher than NLOK’s 6.23.
So, NLOK is the more affordable stock.
NLOK has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, FTNT has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In terms of Value Grade, NLOK has a B, given its lower-than-industry P/E ratio. But FTNT’s Value Grade of D is reflective of its higher-than-industry P/E ratio.
Both NLOK and FTNT have a Momentum grade of C, which is consistent with their price returns over the past three months.
Of the 24 stocks in the Software – Security industry, NLOK is ranked #1 while FTNT is ranked #7.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both NLOK and FTNT for Quality, Stability, Sentiment, and Growth. Get all NLOK ratings here. Also, click here to see the additional POWR Ratings for FTNT.
With cybersecurity threats and data privacy breaches on the rise amid continuing digital transformation, the global cybersecurity solutions industry is experiencing exponential growth. This should propel the demand for cybersecurity products offered by FTNT and NLOK. However, NLOK’s expanded privacy offerings and strong subscription growth should help it perform better in the near term. Furthermore, NLOK appears to be relatively undervalued compared to FTNT. So, we think it is the better investment option now.
Want More Great Investing Ideas?
FTNT shares were trading at $243.45 per share on Tuesday morning, down $3.59 (-1.45%). Year-to-date, FTNT has gained 63.91%, versus a 15.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|FTNT||Get Rating||Get Rating||Get Rating|
|NLOK||Get Rating||Get Rating||Get Rating|