Citi Cuts Fortinet's Target To $31 On Negative Q3 Preannouncement

Fortinet Inc FTNT preannounced negatively for Q3:16, for the first time since Q1:13.

Citi’s Walter H. Pritchard maintains a Neutral rating on the company while lowering the price target from $35 to $31.

Negative Preannouncement

“Mgmt. attributed weakness to: 1) sales execution issues in North America, both in enterprise and service provider as sales cycles lengthened and less urgency to buy, 2) macro in LatAm & UK and 3) implementation of new ERP system in July, which was known,” Pritchard mentioned.

Related Link: Goldman Removes Fortinet From "Conviction Buy" List Following Warning

The analyst believes management’s comments regarding lower urgency to buy, along with Citi’s own analysis, points to persisting deceleration in the network security market, following the strength seen in 2014–2015.

Metrics Lowered

The pre-announcement implied product growth in the mid- to high-single-digits, with attach of new annuity in line with Q3:15.

Fortinet now expects billings in the range of $343–$348 million, down from the guidance of $372–$376 million.

The company lowered the revenue guidance for Q3:16 from $319–$324 million to $311–$316 million, with operating margins down from 14–15 percent to 12–13 percent.

In addition, Fortinet pre-announced its Q3 EPS at $0.15–$0.16, down from the earlier guidance of $0.17–$0.18.

Pritchard believes this implies billings growth of 15–16 percent, as compared to the expectations of 25 percent.

“Mgmt. continues to see 2020 OPM target of 20 percent although this may require expense reduction or significant slowing in OpEx growth,” the analyst added.

At last check, Fortinet was down 12.56 percent at $29.81.

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