California-based Fortinet (FTNT) provides cybersecurity solutions to enterprise customers and government organizations. Let’s take a look at the company’s latest financial performance and risk factors.
Fortinet’s Q2 Results and 2021 Outlook
The company reported its second-quarter results on July 29. Revenue in the quarter increased 30% year-over-year to $801.1 million, driven by a 41% jump in Product revenue and a 24% rise in Service revenue. Adjusted EPS came in at $0.95, up from $0.83 a year ago.
Encouragingly, Fortinet CEO Ken Xie commented, “We are pleased with our strong business momentum heading into the second half of the year and are delighted to once again raise full-year revenue and billings guidance.”
For Q3, Fortinet expects revenue to fall in the range of $800–$815 million. It anticipates adjusted EPS to be around $0.90–$0.95.
For the full-year 2021, the updated outlook anticipates revenue to come in just under $3.25 billion. It previously guided revenue to around $3.08–$3.13 billion. Adjusted EPS is now expected be in the range of $3.75–$3.90. (See Fortinet stock charts on TipRanks).
Fortinet’s Risk Factors
According to the new TipRanks Risk Factors tool, Fortinet now carries 57 risk factors, up from 55 previously. Its top risk category is Finance and Corporate, representing 28% of the total risks. Tech and Innovation, and Production are the next two major risk categories at 19% and 16%, respectively.
Since June, Fortinet has edited its risk profile and added three new risk factors, two under Finance and Corporate, and one under Macro and Political categories.
A newly added Finance and Corporate risk cautions about the potential consequences of debt; having closed Q2 with $987.5 million in outstanding debt. This could increase Fortinet’s vulnerability in an economic downturn, and reduce the cash available for capital expenditures or share repurchases.
Another newly added Finance and Corporate risk factor relates to corporate responsibility pertaining to matters of environmental, social, and governance. Fortinet cautions that increasing focus on these matters may induce expensive initiatives to meet investors’ expectations. That could, in turn, adversely affect its financial condition, it says.
Finally, a newly added Macro and Political risk factor warns about the impact of the COVID-19 pandemic on the global supply chain. Fortinet highlights the global chip shortage and says it could cause delays in delivering customer orders or cause the price of its products to spike, becoming less competitive in the market.
Fortinet’s Finance and Corporate risk factor is below sector average at 28% versus 38%. Fortinet’s shares have gained about 105% since the beginning of 2021.
Analysts’ Take
In response to Fortinet’s Q2 results, Deutsche Bank analyst Patrick Colville reiterated a Hold rating on Fortinet stock and raised the price target to $250 from $242. Colville’s new price target still suggests 16.9% downside potential. The analyst noted that the company is taking the right steps in a “healthy” cybersecurity spending market.
Consensus among analysts is a Moderate Buy based on seven Buys and nine Holds. The average Fortinet price target of $289.13 implies 4.9% downside potential from current levels.
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