Fortinet shares slide as CapitalOne downgrades stock on more challenging first half

Fortinet (NASDAQ:) shares fell more than 2% Wednesday after the stock was downgraded to Equal-Weight from Overweight at Capital One Securities, with the firm increasing its price target for the stock to $62 from $59 per share.

Analysts explained that coming out of the last quarter, they maintained an Overweight rating on the stock but were worried. However, with the stock appreciating over the last couple of months, the firm now believes the timing is right for a downgrade.

“We roll forward our valuation multiples to 2025 but lower estimates on weaker Product revenue and a slower ramp in SASE uptake, resulting in lower billings,” the analysts said. “We think Product revenue will likely be flat to slightly negative in 2024 (COSe -20 bps), with the front half negative. While we have 3% billings growth for 2024, buyside bears see a downside scenario of negative billings.”

“We think the valuation is fair on an EV/revenue and adj FCF basis, given the growth outlook and uncertainty ahead,” they added. “Fortinet’s products remain less-expensive options compared to competitors, which should support growth, especially as it improves its SASE offering and the Salesforce transition bears fruit, but we believe that will take some time.”

In addition, the firm believes the first half of 2024 will be more challenging for the company but will likely skew more positively in the back half with better product traction and sales execution, combined with easier comps.

Elsewhere on Wednesday, Daiwa Securities analyst Stephen Bersey also downgraded Fortinet from Outperform to Neutral with a price target of $62 per share.