It’s deja vu for
Fortinet
investors.
Fortinet
(ticker: FTNT) stock tumbled 23% early Friday dragging other cybersecurity names lower after its earnings and guidance disappointed.
The shares plunged 25% the day after its previous earnings in August, weighing on its peers, too. Once again it’s the company’s outlook, in particular, that appears to be spooking the market and spreading the negative sentiment across the sector.
Fortinet’s revenue and billings forecast for the fourth-quarter both fell short of Wall Street’s expectations.
Rival
Cloudflare
(NET) stock fell 6% after its own fourth-quarter guidance late Thursday also fell short of expectations. The rest of the sector also came under pressure, as
Palo Alto Networks
(PANW) was 4.1% lower,
CrowdStrike
(CRWD) fell 2.8% and
Zscaler
(ZS) pointed 4.2% lower.
“In our view, the current cyclical downturn is likely to be steeper and shorter than the last, which lasted about eight quarters,” Guggenheim analysts led by Raymond McDonough said in a note on Fortinet Friday.” They said that Fortinet’s earnings and guidance suggest a steeper decline, also adding that buying behaviors could limit the recovery in 2024.
However, they maintained a Buy rating on the stock, lowering their price target to $62, noting that “management has proven its ability to navigate cycles in the past.”
Stifel analyst Adam Borg downgraded the stock to Hold from Buy, also lowering his price target to $52 from $69.
RBC Capital Markets analysts led by Dan Bergstorm kept a Sector Perform rating but cut their price target to $55 from $68. “Results were again mixed as we exit several years of more robust growth,” they said, noting that billings growth has now decelerated for six consecutive quarters.
Fortinet expects revenue of between $1.38 billion and $1.44 billion in the fourth quarter, lower than the $1.5 billion consensus seen by analysts polled by FactSet. Billings are forecast to be between $1.56 billion and $1.7 billion, again missing estimates of $1.9 billion.
The stock came into Friday trading up 18% so far in 2023. Those gains may not last the day.
Write to Callum Keown at callum.keown@barrons.com
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