Goldman Sachs Downgrades Fortinet To Sell

Fortinet Inc (NASDAQ: FTNT) investors missed out on the market rally on Friday after the stock got a high-profile Wall Street downgrade.

The Analyst

Goldman Sachs analyst Gabriela Borges downgraded Fortinet from Buy to Sell and lowered her price target from $95 to $59.

The Thesis

According to Borges, after a 7-percent upward revision to 2019 Wall Street revenue estimates, a 41-percent upward revision to EPS estimates and a 50-percent gain in share price, the bullish catalysts are likely all played out for Fortinet stock in the near term.

“An elevated multiple relative to history and peers, coupled with the likelihood of decelerating product revenue over the next two years, suggests that at best, upside is priced in, and at worst, any volatility in estimates may also drive multiple compression,” Borges wrote in a note.

Borges said the current firewall refresh cycle may be peaking, and Fortinet stock has a history of experiencing earnings multiple contraction during periods of product revenue growth declines.

She said Goldman has identified many similarities between the company’s current environment and a similar period of underperformance back in 2015. One key unknown at this point is how long the refresh cycle will last, with management previously indicating it will continue into 2020. Borges said that Fortinet was able to continue to gain market share throughout the previous cyclical downturn and may do so again during the next downturn, but the stock will still likely underperform.

Price Action

Fortinet stock traded mostly flat around $67.14 on an extremely strong day for the tech sector.

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