On Monday (NASDAQ:MNDY), CapitalOne raised its price target on shares of Fortinet (NASDAQ:FTNT), a global leader in broad, integrated, and automated cybersecurity solutions, from $69.00 to $84.00. The firm has maintained an Equal-weight rating on the stock.
The adjustment follows Fortinet's recent financial performance, where the company exceeded expectations, particularly in profitability. Fortinet reported a solid quarter, surpassing service revenue predictions with a 2% beat, which was 3.5% above CapitalOne's estimate.
The growth was largely fueled by the company's SaaS solutions, with SecOps achieving a remarkable year-over-year increase of 50%, now making up 10.5% of billings. Additionally, Unified SASE saw a 27% year-over-year growth, currently representing 23% of billings.
For the first time in five quarters, Fortinet's product revenue experienced growth, showing a 2% year-over-year increase. The company emphasized that the product revenue, excluding backlog, saw a double-digit percent sequential growth from the second to the third quarter, surpassing usual patterns for this period.
The company's billing also outperformed expectations, beating consensus billings by 3% and CapitalOne's estimate by 4%. The duration of contract terms remained steady both year-over-year and quarter-over-quarter at 28 months.
Fortinet's adjusted operating income exceeded consensus expectations by 19% and CapitalOne's estimate by 20%. This success was attributed to a combination of better top-line results, reduced cost of revenue and sales and marketing expenses, and a one-time benefit arising from renegotiating a supplier contract. Without this one-time benefit, the margins would have been reported at 35.1% instead of the actual 36.1%.
In other recent news, Fortinet Inc. reported impressive Q3 2024 results, surpassing expectations with total revenue seeing a 13% increase to reach $1.508 billion.
This strong performance was marked by a record gross margin of 83.2% and an operating margin of 36.1%. The company experienced a return to growth in product revenue, which rose by 2%, while service revenue saw a significant jump of 19%, driven by a robust demand for SaaS solutions.
Fortinet's Unified SASE accounted for 23% of the business, and the company has adjusted its full-year revenue and operating margin guidance upwards. In addition, Fortinet added over 6,000 new customers, with the EMEA region performing exceptionally well. The company also executed share buybacks totaling $600 million.
Recent developments include a cautious future billings guidance due to large deals maturing, and slower progress on larger deals in Q4. Despite these, the company anticipates a significant firewall refresh cycle to begin in 2025. Fortinet's acquisitions of Lacework and Next (LON:NXT) VLP had a positive impact on Q3 billings and revenue.
The company's strong quarterly performance was bolstered by healthy growth in both product and service revenues.
InvestingPro Insights
Fortinet's recent financial performance, as highlighted in the article, aligns well with several key metrics and insights from InvestingPro. The company's market capitalization stands at an impressive $70.54 billion, reflecting its strong position in the cybersecurity sector.
InvestingPro data shows that Fortinet's revenue for the last twelve months as of Q3 2024 was $5.71 billion, with a notable revenue growth of 10.4% over the same period. This growth is consistent with the company's reported success in SaaS solutions and product revenue increases mentioned in the article.
Two relevant InvestingPro Tips further support the positive outlook:
1. Fortinet boasts impressive gross profit margins, which is evident in the reported adjusted operating income that exceeded expectations.
2. Analysts predict the company will be profitable this year, aligning with the strong financial performance discussed in the article.
These insights from InvestingPro complement the article's analysis of Fortinet's recent performance and CapitalOne's price target increase. For investors seeking a deeper understanding of Fortinet's financial health and market position, InvestingPro offers 19 additional tips, providing a comprehensive view of the company's potential.
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