Why Fortinet Belongs In The Conversation With Cisco And Palo Alto

Baird said in a note Wednesday that Fortinet Inc FTNT is being talked about in the same breath as its industry peers, namely Check Point Software Technologies Ltd. CHKP, Palo Alto Networks Inc PANW and Cisco Systems, Inc. CSCO.

Analyst Jayson Noland pointed to the consolidation in the firewall market, with only four key players now, including Fortinet. The analyst expects the trend to continue and Fortinet to continue chipping market share away from its rivals in the years to come.

With his channel checks revealing commoditization of Firewall, the analyst is of the view that the trend would favor the price/performance advantage of Fortinet. The analyst also noted the sales reorganization embarked on by the company is now mostly complete.

Chasing Large Deal Dream

Baird noted Fortinet continued to win up-market deals, with management making a lot of noise about its fabric, multi-product deals, non-FortiGate products and enterprise bundles.

"We don't expect them to compete in every large enterprise deal but they are increasingly mentioned by large resellers," Baird said.

On Network Processor Launch, Cloud & Operating Model

Baird views the company's launch of its next network processor, dubbed NP8, to be a product cycle catalyst.

On cloud, the firm noted the company has been selling software-only solutions in the public cloud, although it expressed a lack of clarity concerning the competitive advantage relative to others.

"We do believe Fortinet has a distinct advantage selling high-end, high-throughput solutions to cloud service providers similar to its success selling into telco service provider," Baird added.

Baird said the company's long-term model offers substantially more leverage, with 35 percent operating margin target at maturity. Management has guided to 20 percent operating margin by 2020, the firm noted.

As such Baird upgraded shares of Fortinet to Outperform from Neutral, while it lifted its price target to $50 from $38.

At the time of writing, Fortinet shares were up 4.29 percent at $38.13.

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