Fortinet tumbles 18% after cutting full-year forecast; TD Cowen downgrades

Fortinet (NASDAQ:) shares fell as much as 18.8% in pre-market Friday trading after the cybersecurity company reported weaker-than-expected billings and revenue for the second quarter.

This underperformance prompted the management to lower the full-year forecast. Fortinet now sees FY revenue at $5.4 billion, down from the prior $5.46B and from the consensus of $5.47B. Full-year billings are now seen at $6.54B, down from the prior guidance of $6.78B, and the consensus of $6.79B.

“As a leading cybersecurity platform and secure networking vendor, we remain well-positioned for strong long-term growth as companies increasingly look to consolidate vendors and point products,” said Ken Xie, founder, chairman and chief executive officer at Fortinet.

“We are one of the top market share leaders in both SD-WAN and OT, and we will continue to focus on our key long-term growth markets of Secure Networking, Consolidated Cybersecurity Fabric, Hybrid Cloud Security, and Operational Technology, which have a combined 2023 TAM of $122 billion.”

The company sees FY adjusted EPS at $1.51, while the Street was at $1.47.

For this quarter, Fortinet expects to report adjusted EPS of $0.36 on revenue of $1.35B, which compares to the consensus for earnings of $0.36 on revenue of $1.38B. Q3 billings are seen at $1.59B, while analysts hoped for $1.68B.

As far as the second quarter performance is concerned, Fortinet reported a of $0.38, ahead of the consensus of $0.34. Revenue and billings rose 26% and 18% year-over-year to $1.29B and $1.54B, respectively, worse than the expected $1.3B and $1.59B.

TD Cowen analysts downgraded the stock to Market Perform on “soft print & outlook.”

“We are downgrading FTNT to Market Perform from Outperform and are lowering our PT to $70 from $90 based on 1) Perimeter firewalls could be seeing a post-COVID slowdown and SD-WAN/SASE is insufficient to sustain historical growth rates; 2) Enterprise softness is raising competitive concerns; 3) Exposure to the service provider vertical that is a top FTNT vertical could be facing NT macro pressures.”

Morgan Stanley analysts cut the price target by $4 to $80 per share but remain Overweight-rated.

“While a disappointing Q2 result, we remain bullish FTNT longer term and expect billings growth to reaccelerate through FY24. Growing secular tailwinds plus strong share gain should drive durable high-teens topline CAGR, while margin expansion/ buyback deliver >20% CAGR in FCF/share,” the analysts said.