Market Overview

KeyBanc's Confidence In Fortinet's Margin Targets Falls

KeyBanc's Confidence In Fortinet's Margin Targets Falls

Shares of Fortinet Inc (NASDAQ: FTNT) have gained 23 percent since the start of 2018 and 45 percent over the past year, which implies the stock's valuation is full, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc's Rob Owens downgraded Fortinet's stock rating from Overweight to Sector Weight with no assigned price target.

The Thesis

Fortinet's status as a standout in the network security space remains, and the company still faces a compelling emerging cloud opportunity, Owens said in the downgrade note. But after multiple quarters where the company reiterated its long-term targets of 150 to 200 basis points of annual operating margin expansion, Fortinet's recent target "appears to have faded from a resolution to more of a suggestion," the analyst said.

This could result in increased volatility and potential disappointment for investors if the company returns to "spend mode" to gain market share at the further expense of margins, Owens said. 

Fortinet's stock has appreciated to the point where it's trading at 13.3x EV/2019 FCF and 4.2x EV/2019 sales forecast, according to KeyBanc. When adjusted for a multiyear duration for billings, shares are trading at around 21.5x EV/one-year FCF. While this is "not particularly expensive" on a historical or relative basis, the prospect of a more a gradual margin expansion implies the risk-reward profile isn't as favorable as it was in the past, Owens said. 

Price Action

Fortinet shares were falling 2.5 percent at the time of publication Monday. 

Related Links:

Barclays Goes Neutral On Fortinet In 'Tougher' Firewall Market

Fortinet's Underappreciated Growth Story

Latest Ratings for FTNT

Aug 2019MaintainsEqual-Weight
Aug 2019MaintainsSell
Aug 2019UpgradesNeutralBuy

View More Analyst Ratings for FTNT
View the Latest Analyst Ratings

Posted-In: cloud KeyBanc Capital Markets network security Rob Owens securityAnalyst Color Downgrades Analyst Ratings Best of Benzinga


Related Articles (FTNT)

View Comments and Join the Discussion!

Latest Ratings

HTHTDaiwa CapitalDowngrades
GSKNew StreetUpgrades
JNJCredit SuisseMaintains158.0
TDGCredit SuisseMaintains584.0
SCHWDeutsche BankReiterates35.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at

Mid-Day Market Update: Dow Falls Over 300 Points; Klondex Mines Shares Spike Higher

B Riley FBR: Nvidia Remains Attractive For Growth Investors Ahead Of Analyst Day