Growth stock Fortinet surged after earnings came out May 4, and on Friday it broke out of a flat base. Shares remain in buy range, making the company today's pick for IBD 50 Stocks to Watch.
Shares of the IBD 50 stock surged in strong volume the day after the earnings report, retaking the 50-day moving average. Volume was highest in the base, according to IBD MarketSmith chart analysis.
In the first quarter, sales grew 32% to $1.26 billion while earnings per share of 34 cents rose 79% from the previous year. Perfect Composite and EPS Ratings of 99 indicate impressive technical strength while the Relative Strength Rating of 93 also shows Fortinet's market leadership.
The relative strength line is near a 52-week high, which shows the stock's outperformance compared with the S&P 500.
Revenue from product sales grew 35%, with service revenue picking up 30% from the year-ago period.
For the current quarter, Fortinet expects sales of $1.28 billion-$1.32 billion, with earnings of 33-35 cents per share. Analysts polled by FactSet have views in the midrange, with sales of $1.3 billion and earnings of 34 cents.
For fiscal year 2023, the company views sales of $5.42 billion-$5.48 billion and earnings per share of $1.44-$1.48. Wall Street's midrange estimate for full-year sales is $5.46 billion and earnings of $1.46.
Analysts Focus On Fortinet's Execution
Several analysts upgraded FTNT stock after the early-May earnings report. Bank of America upgraded the growth stock to a buy from neutral with a price target of 75. Citigroup raised its target to 73 while keeping a buy rating.
Networking stocks face challenges as backlogs trend lower. However, BofA analyst Tal Liani says that in "the current uncertain environment, it is more prudent for investors to focus on the basic value proposition of Fortinet and ignore the quarterly noise of backlog trends."
The stock broke out Friday past a 69.17 buy point. The flat base formed over five weeks with a depth of 13% — about the minimums for a flat base.
Mutual funds own 47% of shares outstanding. More funds have been buying the networking giant for the past eight quarters, helping the stock to an Accumulation/Distribution Rating of B+.
The Sunnyvale, Calif.-based company makes products for integration and automation that improve online security.
Growth Stock Leads Its Group
The growth stock is also an AI play. Automation and analytics in real time allow its security operations to protect, detect and respond to security threats.
Fortinet leads the security software group, which holds 61st place among IBD's 197 industry groups. That may be about to get better. According to recent reports from research firm Gartner, 75% of businesses are looking to consolidate their security vendor, up from 29% in 2020.
According to Precedence Research, the global artificial-intelligence cybersecurity market is set to spike from $17.4 billion in 2022 to $102.78 billion by 2032. Fortinet's industry and market leadership makes it a key growth story in the sector.
Exchange traded funds holding shares of Fortinet include the First Trust Nasdaq Cybersecurity ETF and the Invesco Dynamic Networking ETF.
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