Fortinet is the IBD Stock of the Day for Tuesday. Shares of the cybersecurity company are in a short consolidation pattern that could become a flat base by next week.
On the stock market today, Fortinet stock dipped a fraction to close at 97.62. Shares of the Sunnyvale, Calif.-based company have rallied 67% this year, including a 16% gain since the company reported third-quarter earnings in early November. Fortinet is the top-ranked stock among the 85-stock Computer Software-Security group tracked by Investor's Business Daily.
Founded in 2000, Fortinet competes against Palo Alto Networks and other firms in the firewall network security market, designed to block against online intrusions and other cyber threats. Fortinet also targets a growing market called Secure Access Service Edge. SASE rolls up a range of cybersecurity functions for enterprises to a single cloud-based package.
Analysts See Fortinet Benefiting From 'Vendor Consolidation'
Analysts project Fortinet's 2024 adjusted earnings will increase 38% to $2.25 per share while sales climb 11% to $5.9 billion. That's a slowdown from the 20% sales growth Fortinet posted in 2023 and 32% growth in 2022. The company's product revenue has slowed as companies have pulled back on network firewall spending.
Competition is also increasing as companies look to provide a broader cybersecurity platform across several services.
But Fortinet stock jumped 10% on Nov. 8 following a third-quarter earnings report that beat expectations for both earnings and sales. Later in November, Fortinet hosted an analyst presentation that led to a mostly positive reception from Wall Street.
"Even though there were no new product announcements, we came away incrementally more positive from the conference as it is one of the best positioned security companies to benefit from vendor consolidation based on its product breadth, in our opinion," Truist analyst Junaid Siddiqui said in a note to clients following the Nov. 18 presentation. "We continue to be impressed with the company's pace of innovation and favor its balanced approach between growth and profitability."
Truist reiterated a buy rating for Fortinet stock with its report. Analysts at BofA Securities also rate Fortinet stock a buy and were positive overall on the analyst presentation last month.
"On the one hand, management did not provide guidance for 2025, driving some uncertainty about the magnitude of the upcoming firewall refresh cycle," BofA analyst Tal Liani said in a Nov. 19 note. "On the other hand, (Fortinet's) three- to five-year guidance targets are solid, and we see room for upside vs. (Wall) Street estimates for 6.6% product revenue growth in 2025."
Analysts are mostly neutral on the stock overall, however. There are 42 analysts following Fortinet, according to FactSet, with 16 holding a buy or equivalent rating. Meanwhile, 25 analysts are neutral and one analyst holds a sell call.
Guggenheim analyst John DiFucci, for example, wrote following the analyst day that Fortinet is a "strong technology company" but he "cannot ignore the fact that business momentum has deteriorated in each of the last eight quarters." He kept to a neutral call.
Fortinet Stock On IBD 50 List
Meanwhile, Fortinet stock is on the IBD 50 flagship list of growth stocks. It has strong ratings by several metrics.
Fortinet stock holds a best-possible Composite Rating of 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks typically have a Composite Rating of 90 or better.
Another positive indicator is that shares hold a Relative Strength Rating of 92 out of a best-possible 99.
Even with some challenges with its sales growth, Fortinet has posted strong earnings results, as shown in its best-possible EPS Rating of 99.
Meanwhile, the Computer Software-Security group ranks No. 85 out of 197 industry groups that IBD tracks. Read more about IBD's industry group approach here.
Other cybersecurity stocks have made recent moves as well. CrowdStrike on Monday broke out past an alternate handle buy point of 377.42. Palo Alto Networks and Zscaler are setting up chart bases as well.
You can read more here on cybersecurity trends and stocks to watch in 2025.
