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Key Takeaways
- Cybersecurity firm Fortinet topped quarterly sales and profits, boosted by record operating margins, and its shares skyrocketed.
- Fortinet maintains a strong position in the Secure Access Service Edge (SASE) market.
- Jefferies analysts increased their price target on Fortinet stock, citing its margin expansion.
Fortinet (FTNT) shares took off Wednesday after the cybersecurity firm released a strong set of financial results, posting its highest-ever quarterly operating margin while topping sales and profit forecasts.
Total revenue for the second quarter came in at $1.43 billion, up 11% from a year ago and edging out consensus forecasts calling for $1.40 billion. Earnings per share (EPS) of 54 cents blew past analysts’ estimates of 41 cents.
The company also issued an upbeat forward outlook, anticipating EPS for the current quarter well above consensus forecasts.
Fortinet shares rose 25% to $69.93, their highest close since early April. The stock was the biggest gainer on the S&P 500 Wednesday.
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Growth in Higher-Margin Services Boosts Results
Fortinet’s outsized profit beat hinged on margin expansion. Second-quarter operating margins of 30.5%, based on generally accepted accounting principles (GAAP), constituted a record for the California-based software firm.
Gains in higher-margin service revenue, which jumped 20% year over year, helped drive the strong sales performance as well as the effective profit results.
Fortinet maintains a strong position in the growing Secure Access Service Edge (SASE) market. SASE, pronounced “sassy,” is a model that combines networking and cybersecurity solutions in a single cloud service. The technology can be useful for companies with remote as well as on-site workers, as it allows them to standardize security protocols across systems.
Ken Xie, Fortinet founder and CEO, highlighted the competitive advantages of the firm’s SASE offerings in a statement accompanying the earnings release. “We expect to emerge as a SASE leader,” he said.
Jefferies Lifts Stock Price Target
Following the earnings report, Jefferies boosted its price target on Fortinet stock to $70 per share from $65. Analysts said the company’s margin expansion appears sustainable but highlighted risks related to product refresh, maintaining a “hold” rating on the stock.
Meanwhile, Wedbush analysts reiterated their “outperform” rating and $78 price target on Fortinet stock, praising its “great bounce-back quarter” and pointing to a strong deal pipeline for the remainder of 2024.