On Friday, Baird maintained its positive stance on Fortinet (NASDAQ:FTNT), a global leader in broad, integrated, and automated cybersecurity solutions. The firm's analyst increased the price target for the stock to $105.00, up from the previous $100.00, while keeping an Outperform rating on the stock.
The analyst's decision comes in light of Fortinet's impressive year-to-date performance, noting that the stock has surged approximately 60% this year, excluding the performance of companies that have gone public this year, like RBRK since its IPO in April.
Despite a slight sentiment reversal over the past month, with Fortinet shares rising about 2% compared to a flat performance in the iShares Expanded Tech-Software Sector ETF (IGV), the firm regards the recent pullback as a normal short-term reset and a recalibration of expectations.
Baird's outlook for Fortinet heading into 2025 is optimistic, with anticipation of revenue acceleration and the continuation of strong operating and free cash flow (FCF) margins exceeding 30%. According to the firm's analysis, Fortinet remains solidly within the Rule-of-40, a benchmark for evaluating the trade-off between growth and profitability in software companies.
The coverage ratio for Fortinet, which measures the percentage of a market effectively covered by a company's products or services, is reported to be 69.8%. This places the company in the middle of the pack, consistent with its ratio in the second calendar quarter of the year.
While acknowledging that Fortinet's elevated valuation may constrain some near-term upside potential, Baird believes that the company's strategic emphasis on the rapidly expanding Secure Access Service Edge (SASE) and Security Operations (SecOps) markets, along with an upcoming product refresh cycle, positions it well to rekindle growth in the near future.
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