FTNT Stock Study (10-10-25)

I recently did a stock study on Fortinet, Inc. (FTNT) with a closing price of $87.19. Previous studies are here and here.

Value Line writes:

     > Fortinet, Inc. provides cyber security solutions to businesses
     > and government agencies. Its flagship solution, FortiGate,
     > includes integrated security and networking functions to protect
     > data, applications, users from network- and content-level
     > security threats across firewall, software defined networking
     > (SD-WAN), Wifi and switch (LAN Edge) and secure access edge
     > (SASE). It sells products and services to distributors.

Since 2018 (previous years excluded due to small EPS mathematically distorting growth rate), this medium-size company has grown sales and earnings at annualized rates of 23.5% and 36.2%, respectively. Lines are up, straight, and parallel except for an EPS dip in ’19. Value Line (VL) gives an Earnings Predictability score of 95.

Since 2018, PTPM leads peers and trails the industry while increasing from 13.9% to 34.6% (’24) with a last-5-year mean of 24.2%. Stock repurchases really take off since ’20 thereby driving ROE negative in ’22 and over 1000% in ’23. Repurchases raise Debt-to-Capital > 100% in ’22 and ’23 before returning to 40.0% in ’24 as shareholders’ deficit reverses to equity.

Quick Ratio is 1.21 and Interest Coverage is 119 per M* who gives a “Standard” rating for Capital Allocation, a Financial Health grade of B (per BI website). and assigns a “Wide” Economic Moat. VL grades the company B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 11.4% and 11.7% for ’25 and ’26, respectively (based on 42 analysts).
• Zacks projects YOY 13.3% and 11.0% for ’25 and ’26, respectively (15 analysts).
• VL projects 12.5% annualized growth from ’24-’29.
• CFRA projects 13.7% YOY and 12.8% per year for ’25 and ’24-’26, respectively.
• M* provides 2-year annualized ACE of 12.7% and projects 14.0% per year for the next five years in its analyst note.

My 11.0% forecast is at bottom of the range.

With regard to EPS growth:

• MarketWatch projects 11.0% and 11.8% per year for ’24-’26 and ’24-’27, respectively (based on 45 analysts).
• Nasdaq.com projects 10.0% YOY and 11.1% per year for ’25 and ’24-’26 (18, 18, and 4 analysts for ’25, ’26, and ’27).
• Seeking Alpha projects 4-year annualized growth of 13.6%.
• Finviz projects 5-year annualized growth of 8.9% (12).
• LSEG projects LTG of 10.0%.
• SERR [debut coverage: TBD whether novel or duplicate (LSEG) metric] projects 4-year annualized growth of 10.0% (1).
• YF projects YOY 6.4% and 10.7% for ’25 and ’26, respectively (43).
• Zacks projects YOY 6.3% and 10.3% for ’25 and ’26, respectively (19), along with 5-year annualized growth of 12.0%.
• VL projects 7.5% annualized growth from ’24-’29.
• CFRA projects 7.6% YOY and 9.3% per year for ’25 and ’24-’26, respectively, along with 3-year CAGR of 11.0%.
• M* projects long-term annualized growth of 14.8%.

My 7.0% forecast is below the long-term-estimate range (mean of seven: 11.0%). I will use ’24 EPS of $2.26/share as the initial value rather than 2025 Q2 $2.51 (annualized).

My Forecast High P/E is 42.0. Since 2018, high P/E ranges from 44.5 in ’24 to 102 in ’21 with a last-5-year mean of 55.3 (excluding ’21) and last-5-year-mean average P/E of 43.3. I am below the range.

My Forecast Low P/E is 24.0. Since 2018, low P/E ranges from 22.8 in ’18 to 40.2 in ’22 with a last-5-year-mean of 31.3. I am forecasting toward bottom of the range (only ’18 is less).

My Low Stock Price Forecast (LSPF) is $60.00 (arbitrary). Default ($54.20) based on initial value above seems unreasonably low at 37.1% less than the previous close and 22.7% less than the 52-week low. This is 30.4% and 14.4% less, respectively.

These inputs land FTNT in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 9.1%.

PAR (using Forecast Average—not High—P/E) of 3.9% is much less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on the 9.1% total annualized return (TAR) instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 247 studies in the past 90 days (my study along with 91 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.6%, 12.1%, 43.7, and 28.8, respectively. I am lower across the board. VL projects a future average annual P/E of 40.0 that is greater than MS (36.3) and greater than mine (33.0).

MS high / low EPS are $4.36 / $2.31 versus my $3.17 / $2.26 (per share). My high EPS is less due to a lower growth rate. VL’s high EPS of $3.25 is just above mine.

MS Low Stock Price Forecast (LSPF) of $63.00 implies a Forecast Low P/E of 27.3: less than the above-stated 28.8. MS LSPF is 5.3% less than the default $2.31/share * 28.8 = $66.53 resulting in more conservative zoning. MS LSPF is 5.0% greater than mine, however.

With regard to valuation, PEG is 2.9 and 4.6 per Zacks and my projected P/E, respectively. This is extremely overvalued while M* shows undervalued at 0.88. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.79.

MOS is robust in the current study because my inputs are less than MS and near or less than respective analyst/historical ranges. MS TAR of 17.0% is 7.9% per year greater than mine.

Per U/D, FTNT is a BUY under $78/share. Given forecast high price ~$133, the BI TAR criterion [double in five years] is met under $66.50.

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