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.

The Price Target

Fortinet shares were up 0.68 percent at $88.77 at the time of publication Tuesday.

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