Goldman Removes Fortinet From 'Conviction Buy' List Following Warning

Underestimating Risks

Analyst Gabriela Borges noted that she had underestimated the risks associated with the company's sales force reorganization and a slowdown in the firewall market persisting into the second half of 2016.

Fortinet Warns On Billings, Revenues, EPS

Delving on the pre-announcement, Goldman noted that Fortinet lowered its third-quarter billings guidance by 8 percent, blaming it on lengthening deal cycles and sales execution challenges in North America. Revenues are now expected to be 2.5 percent lower and earnings per share $0.02 lower.

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Buy Rating Intact: Stock Well Positioned To Grow

The firm, however, maintains it Buy rating as it believes the company is well positioned to gain share and outgrow peers. Goldman sees potential for a capital allocation, restructuring or M&A event.

Compelling Valuation, But Price Target Trimmed

Goldman sees the valuation of Fortinet as compelling, relative to its absolute growth profile. The firm is of the view that the management should reset the bar in its earnings release on October 27 and execute more consistently going forward.

As such, Goldman lowered its price target on the shares to $36 from $43.

In pre-market trading, shares of Fortinet were down a whopping 14.34 percent at $29.20.

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