Deja Vu for Fortinet Investors

Fortinet (ticker: FTNT) investors are experiencing déjà vu as the company’s stock plummeted 23% early Friday, causing a ripple effect across the cybersecurity sector. This comes shortly after the stock dropped 25% following its previous earnings report in August. Once again, it is Fortinet’s outlook that has spooked the market and generated a wave of negative sentiment.

Fortinet’s revenue and billings forecast for the fourth quarter fell short of Wall Street’s expectations. This disappointing performance has not only affected Fortinet but also had an impact on other cybersecurity companies. Cloudflare (NET) saw a 6% decline after releasing its own fourth-quarter guidance, which also fell short of expectations. Palo Alto Networks (PANW) dropped 4.1%, CrowdStrike (CRWD) fell 2.8%, and Zscaler (ZS) experienced a 4.2% decline.

Guggenheim analysts led by Raymond McDonough state that they believe the current cyclical downturn will likely be steeper and shorter than the previous one, which lasted approximately eight quarters. They also suggest that Fortinet’s earnings and guidance indicate a steeper decline and that buying behaviors could limit recovery in 2024. Despite this, they maintain a Buy rating on the stock but have lowered their price target to $62, commending management for their ability to navigate through cycles in the past.

Stifel analyst Adam Borg has downgraded Fortinet’s stock to Hold from Buy and adjusted the price target to $52 from $69.

RBC Capital Markets analysts led by Dan Bergstorm have kept a Sector Perform rating but reduced their price target to $55 from $68. They note that Fortinet’s recent results have been mixed as the company moves away from several years of more robust growth. Billings growth has now decelerated for six consecutive quarters.

For the fourth quarter, Fortinet expects revenue to be between $1.38 billion and $1.44 billion, falling short of the $1.5 billion consensus projected by analysts polled by FactSet. Billings are forecasted to range between $1.56 billion and $1.7 billion, missing estimates of $1.9 billion.

Despite starting the year with an 18% increase in stock value, Friday’s decline may dampen those gains.

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