Wells Fargo Downgrades Fortinet Amid Slow SASE Adoption

Summary

  • Fortinet (NASDAQ:) stock valued lowered to Equal Weight from Overweight by Wells Fargo on Tuesday.
  • Fortinet’s revised price target is $65, up from $60 per share.
  • The downgrade is due to three critical parameters: slow start of SASE demand trends, slower billings growth expected in FY24, and curbed free cash flow progress.
  • Fortinet’s competition with market leaders such as Palo Alto Networks and Zscaler may affect its SASE adoption rate.
  • Estimates for FY24 and FY25 foresee moderate growth of 5.0% and 10.4%, respectively.

Fortinet’s Reclassification by Wells Fargo

On Tuesday, analysts at Wells Fargo downgraded the shares of Fortinet (NASDAQ:) from Overweight to Equal Weight. The stock’s price target was simultaneously increased from $60 to $65 per share.

Reasons for the Downgrade

The downgrade is connected to three primary factors: a slow initial uptake of SASE demand trends, a massive driver of billings; a dip in free cash flow growth; and slower billings growth projected for FY24.

Projected Future Growth for Fortinet

Analysts anticipate that Fortinet’s growth in billings will decline to single digits in FY24. They suggest that it may take an extended period for the company to return to double-digit growth levels. The slowing free cash flow and a dearth of operational leverage over the coming two years could pose challenges to Fortinet’s growth acceleration.

SASE Adoption Concerns

The analysts expressed concerns that Fortinet’s transition to SASE is taking off slowly. “While this is a promising long-term strategy, Fortinet may find it challenging to compete against market leaders like Palo Alto Networks and Zscaler. Both of these competitors have significantly advanced in this market,” they commented.

Estimating Growth Potential

The analysts explained that they had over-estimated Fortinet’s FY24 Billings based on the 4Q23 demand trends observed from resellers. As a result, they have lowered their estimates and released new FY25 estimates. These new figures anticipate a modest growth of 5% in FY24 and 10.4% in FY25.

In terms of forex trading, such financial news may impact trader sentiment towards the NASDAQ and towards cybersecurity related stocks. Traders should observe how these downgrades may affect Fortinet’s share prices.

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