Why Fortinet (FTNT) Can Be a Great Addition to Your Portfolio
Fortinet Inc. FTNT is one stock investors should consider adding to their portfolio amid the current macroeconomic and geopolitical uncertainties and gain from its upside potential.
The broader equity market has been highly volatile so far this year due to concerns over inflation, rising interest rates and increasing oil prices. The ongoing Russia-Ukraine war has further increased worries for investors about the global economic recovery. This sent major stock market indexes, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500, down 14.6%, 27.4% and 19.3%, respectively, year to date (“YTD”).
However, this sell-off in the broader equity market has led to a massive correction in several technology companies’ stock prices, which are currently available at an attractive valuation.
In our opinion, Fortinet is one such company that has seen a massive correction YTD as well as in the past year.
Fortinet, Inc. Price and Consensus
Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote
Why Should You Invest in Fortinet?
Fortinet stock has plunged 16.7% YTD and 18.4% in the past year. As a result, FTNT stock currently trades lower than its 52-week high, which reflects its potential to go upward. The stock’s closing price of $59.87 on Jul 6 was19.5% lower than the 52-week high of $74.35 attained on Dec 29, 2021.
With this correction in the stock price, Fortinet currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 53.26X compared with its five-year average of 116.60X.
Additionally, amid the ongoing economic and financial instability, it is prudent to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks with their solid fundamentals allow investors to hedge their funds from any economic downturn.
Apart from having solid fundamentals, Fortinet has the favorable combination of a Growth Score of A and a Zacks Rank #2 (Buy).
Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortinet has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 10.7%. Additionally, FTNT stock has an impressive long-term earnings per share growth expectation of 18%.
The Zacks Consensus Estimate of $1.02 per share for 2022 earnings suggests growth of approximately 27.5% from the year-ago period. For 2023, the consensus mark for earnings is pegged at $1.23, indicating a year-over-year increase of 20.9%.
Strong Fundamental Drivers
Headquartered in Sunnyvale, CA, Fortinet is a provider of network security appliances and Unified Threat Management (“UTM”) network security solutions for enterprises, service providers and government entities worldwide. Its solutions are designed to integrate multiple levels of security protection, including firewall, virtual private networking, antivirus, intrusion prevention, web filtering, anti-spam and wide area network acceleration.
Fortinet is benefiting from the rising demand for security and networking products amid the pandemic as a huge global workforce is working remotely. Moreover, the ongoing conflict in Ukraine and sanctions imposed on Russia may result in an increase in cyberattacks as Kremlin might use it as a tool to put pressure on western countries to ease sanctions.
It is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings. The market research firm, Future Market Insights, predicts that the market size for SD-WAN solutions could reach $53.8 billion by 2032 from an expected $3.4 billion in 2022, indicating a CAGR of 31.6%. As there are only a few vendors who offer security and SD-WAN solutions, FTNT is well-positioned to capitalize on increasing opportunities in the market.
Moreover, continued deal wins, especially those of high value, are a key driver. Higher IT spending on cybersecurity is further expected to aid Fortinet in growing faster than the security market. Also, a focus on enhancing its UTM portfolio through product development and acquisitions is a tailwind for Fortinet.
Other Stocks to Consider
Some other top-ranked stocks worth considering from the broader technology sector are Broadcom AVGO, Synopsys SNPS and CrowdStrike CRWD. Broadcom and Synopsys each sport a Zacks Rank #1, while CrowdStrike carries a Zacks Rank #2.
The Zacks Consensus Estimate for Broadcom's third-quarter fiscal 2022 earnings has been revised upward by 9.9% to $9.62 per share over the past 60 days. For fiscal 2022, the Zacks Consensus Estimate for Broadcom's earnings has moved north by seven cents to $37.03 per share in the past seven days.
Broadcom's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 2.2%. Shares of AVGO have plunged 27.4% YTD.
The Zacks Consensus Estimate for Synopsys' third-quarter fiscal 2022 earnings has been revised upward by 25.3% to $1.93 per share over the past 60 days. For fiscal 2022, earnings estimates have moved north by 7.2% to $8.47 per share in the past 60 days.
Synopsys' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 2.7%. Shares of SNPS have decreased 15.9% YTD.
The Zacks Consensus Estimate for CrowdStrike's second-quarter fiscal 2023 earnings has been revised upward by three cents to 29 cents per share in the past 60 days. For fiscal 2023, earnings estimates have moved north by 11 cents to $1.23 per share in the past 60 days.
CrowdStrike's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 44.3%. Shares of CRWD have plunged 9.1% YTD.
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