Fortinet (NASDAQ:FTNT) shares were cut to Equal Weight from Overweight at Wells Fargo on Tuesday, with analysts upping the price target for the stock to $65 from $60 per share.
Analysts said the downgrade is based on three factors, including SASE demand trends being off to a slow start, which is a key driver of billings, and free cash flow growth.
They noted that billings growth is slowing to single digits in FY24 and may take longer to get back to double digits, while adjusted free cash flow is slowing, and the lack of operating leverage over the next two years will make it difficult to accelerate growth.
"The crux of our downgrade is our concern that the adoption of SASE is off to a slow start," said the analysts. "While the pivot to SASE is the right strategy long term, we believe it will be difficult for Fortinet to compete against market leaders like Palo Alto Networks and Zscaler, both of which have a huge head start in this market."
"We believe our FY24 Billings estimates were too high, based on the 4Q23 demand trends we are seeing from resellers," explained the analysts. "As such, we are lowering our estimates and rolling out our new FY25 estimates. Our new estimates for both FY24 and FY25 have modest growth expectations of 5.0% (FY24) and 10.4% (FY25)."