Fortinet shares fall as CapitalOne downgrades on challenging first half
Fortinet (NASDAQ:) shares experienced a decline of over 2% on Wednesday following a downgrade from CapitalOne Securities. CapitalOne downgraded the stock from Overweight to Equal-Weight and increased its price target for the stock to $62 from $59 per share.
Analysts downgrade Fortinet stock to Equal-Weight on growth concerns
CapitalOne Securities explained their decision to downgrade the stock, stating that despite maintaining an Overweight rating on the stock after the last quarter, they had concerns. However, with the stock appreciating over the past few months, the firm now believes it is the right time for a downgrade.
The analysts also mentioned that they have rolled forward their valuation multiples to 2025, but have lowered their estimates due to weaker Product revenue and a slower ramp in SASE uptake. As a result, they anticipate lower billings. They believe that Product revenue will likely be flat to slightly negative in 2024, with the front half showing negative growth. There are concerns of a downside scenario of negative billings.
Fortinet’s valuation deemed fair, but challenges anticipated in 2024
Despite downgrading the stock, CapitalOne Securities believes that Fortinet’s valuation is fair on an EV/revenue and adj FCF basis, considering the growth outlook and uncertainties ahead. The analysts also noted that Fortinet’s products remain less expensive compared to competitors, which they believe will support growth. However, they anticipate that time will be required for the improvement of Fortinet’s SASE offering and the transition to Salesforce.
Looking ahead, the firm expects the first half of 2024 to be more challenging for Fortinet. They predict that the back half of the year will show better product traction and sales execution, combined with easier comps, resulting in a more positive outlook.
Fortinet’s products seen as competitive, but improvement will take time
CapitalOne Securities acknowledges that Fortinet’s products are competitive and provide a less expensive option compared to its competitors, which should help drive growth. However, they believe that the improvement of Fortinet’s SASE offering and the transition to Salesforce will take some time. Despite this, they expect these efforts to eventually bear fruit.
Fortinet’s first half of 2024 expected to be challenging, but better second half predicted
Looking specifically at the year 2024, CapitalOne Securities anticipates that the first half will be more challenging for Fortinet. However, they predict that the second half of the year will be more positive, with better product traction and sales execution, combined with easier comparisons to the previous year. These factors are expected to contribute to an overall improved outlook for the company.
In addition to CapitalOne Securities, analyst Stephen Bersey from Daiwa Securities also downgraded Fortinet from Outperform to Neutral with a price target of $62 per share. This reflects a cautious sentiment among analysts regarding Fortinet’s growth potential in the near term.
Analyst comment
The news is negative for Fortinet as their shares fell after being downgraded by CapitalOne Securities. The analysts have concerns about growth and anticipate challenges in the first half of 2024. However, they believe Fortinet’s products are competitive and the second half of 2024 will be more positive, leading to an overall improved outlook. Other analysts, including Stephen Bersey from Daiwa Securities, also downgraded the stock, reflecting cautious sentiment.
