Given the ever-increasing threat of cyber-attacks, demand for cyber security services and products continues to rise.
Even with the sector shifting to the cloud and AI, demand remains high, and Wells Fargo said in a note Tuesday that it expects Fortinet (NASDAQ:FTNT) to have been one of the primary beneficiaries in the second quarter.
The firm's analysts raised the firm's price target on the Overweight rated FTNT to $90 from $80, saying they expect it to post strong Q2 results. Here's why:
Firstly, the analysts said they believe investor sentiment on the stock has shifted positively, reflecting the current short interest, which is 1.6% compared to the 4.7% average across the firm's coverage universe.
Meanwhile, Wells Fargo expects FTNT's results to reflect solid demand in the U.S. and EMEA.
"Last quarter, Fortinet saw strong growth in both the Americas and in Europe. Revenue in the Americas increased 37% Y/Y, while revenue in EMEA increased 38% Y/Y. This quarter, demand was again fairly balanced, as we saw strong demand in both the U.S. and in Europe," the analysts wrote.
More specifically, Wells Fargo sees the company benefitting from strong firewall demand.
"Last quarter, Fortinet's product revenue increased 35% Y/Y, driven in part by an increasing number of use cases for the firewall," said the analysts. "We believe the strong demand for firewalls continued in 2Q23, as 43% (up from 35% last quarter) of resellers said firewalls had the strongest demand in the quarter out of all the products."
The analysts stated that they also believe the backlog Fortinet carried into the quarter was roughly $200 million, "which should prop up growth again this quarter."