Tuesday, Raymond (NS:RYMD) James analysts downgraded Fortinet (NASDAQ:FTNT) stock from Outperform to Market Perform. The decision comes after a period of substantial growth for the cybersecurity company, with its shares surging nearly 70% since the second quarter of 2024.
According to InvestingPro data, Fortinet's stock has delivered a 50.27% return over the past year and is currently trading at a P/E ratio of 46.7, suggesting rich valuations. Want deeper insights? InvestingPro offers 15+ additional tips about Fortinet's valuation and growth prospects. Analysts at Raymond James reassessed their position due to the increasing market anticipation of a 'supercycle' in network security, which is now being factored into the company's narrative.
Fortinet's billing growth, a key metric for the firm, has seen dramatic fluctuations, swinging from over 30% growth to negative in the past years, marking the most significant boom/bust cycle in the company's history. However, this metric stabilized and showed mid-single-digit growth in the third quarter of 2024, sparking investor enthusiasm for a potential reacceleration of growth. The company maintains impressive gross profit margins of 79.71% and has generated $1.66 billion in levered free cash flow over the last twelve months.
During Fortinet's analyst day in November, management highlighted a considerable number of units nearing the end of support by 2026. This revelation has led investors and analysts to speculate about the onset of a 'supercycle' in network security, driven by the need for upgrades and replacements.
The downgrade by Raymond James reflects a cautious stance amidst the company's recent gains and the broader market's optimistic expectations. Fortinet's performance will continue to be monitored closely as the market evaluates the potential for a sustained increase in network security demand.
In other recent news, Fortinet has been the focus of several analyst firms. Piper Sandler upgraded Fortinet's stock from Neutral to Overweight, raising the price target from $100.00 to $120.00 due to an optimistic outlook on the company's potential in the forthcoming firewall cycle.
Similarly, Baird maintained an Outperform rating on Fortinet, raising the stock's price target to $105.00, based on the company's robust growth margins and anticipated revenue acceleration.
KeyBanc Capital Markets also upgraded Fortinet's stock from Sector Weight to Overweight, setting a new price target of $115.00, reflecting increased confidence in the company's prospects. Scotiabank (TSX:BNS) and Rosenblatt Securities also upgraded their targets for Fortinet, signaling a strong outlook for the company.
In other recent developments, Microsoft Corporation (NASDAQ:MSFT) reported a 16% year-on-year increase in Q1 FY2025 revenue, reaching $65.6 billion, with the company's cloud unit, Microsoft Cloud, also performing robustly. Analyst firms, including TD Cowen, Citi, Mizuho (NYSE:MFG), and Goldman Sachs, have maintained their positive ratings on Microsoft's stock.
Lastly, the 2025 CIO Survey by Piper Sandler revealed a strong outlook for IT spending, with a record 87% of respondents anticipating budget increases in 2025. This could potentially benefit both Microsoft Corporation and Fortinet. These are some of the recent developments that investors should keep in mind.
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