UBS: Market Now Understands Durability Of Fortinet's Business

Fortinet Inc FTNT shares have doubled year-to-date, sending UBS to the sidelines.

The Analyst

Analyst Fatima Boolani downgraded shares of Fortinet from Buy to Neutral and lifted the price target from $80 to $90.

The Thesis

The valuation gap Fortinet had with Palo Alto Networks Inc PANW has fully closed following higher calendar 2018 estimates of 5-percent revenue growth and 12-percent free cash flow growth, Boolani said in a Tuesday note.

With a 13-percent EV/S expansion for Fortinet vs. the peer median of 7 percent, the ongoing momentum is priced in, the analyst said.

The durability of Fortinet's business is now better understood by the market, Boolani said.

Fortinet's multiple of 7 times 2019 EV/S estimate is likely to hold on steady demand, the analyst said. She sees the magnitude of product revenue upside as key to sentiment and stock reaction.

The Street estimate of 8-percent product revenue CAGR for through calendar 2020 reflect sstable trends and refresh prospects in 2019 and 2020, according to UBS.