Fortinet Positioned For Growth In AI-Based Cybersecurity Boom

Cybersecurity is a hot item, as spending on enterprise information security is forecast to grow fast. One factor driving growth? You guessed it: AI.

Stocks like Palo Alto Networks Inc. NASDAQ: PANW and ZScaler Inc. NASDAQ: ZS have been price leaders recently within the industry, and both have shown strong earnings growth, as well. 

The cybersecurity stock with the best combination of price and earnings growth is Fortinet Inc. NASDAQ: FTNT. The stock’s three-year earnings growth rate is 32%, but growth has been accelerating fast.

In the most recent quarters, earnings grew from 26% to 65% to 76% to 79%. 

The company’s three-year revenue growth rate is 29%. Most recently, year-over-year revenue growth came in at 32%.

Wall Street expects the earnings growth rate to slow to just 3% this year, but rebound to 20% growth in 2024. 

History Of Beating Wall Street Views

MarketBeat’s Fortinet earnings data show the company has a history of beating analysts’ views going back to the second quarter of 2020. 

As a whole, the cybersecurity industry has been notching steadily improving price performance in recent months. 

Fortinet stock has returned 14.06% in the past three months and 51.99% year-to-date. 

A look at the Fortinet chart shows the stock moving steadily higher since rebounding from a brief pullback in late April and early May. 

According to a May report from Morgan Stanley, “AI and Cybersecurity: A New Era,” the global market for AI-based cybersecurity products was about $15 billion in 2021 and will surge to roughly $135 billion by 2030.

Last year, when the media were abuzz with predictions of a recession, some analysts posited that corporations would decrease their cybersecurity spending. However, as it became clear that higher interest rates and higher prices weren’t exactly deterring cybercriminals, that sort of chatter disappeared. 

Cybersecurity Organizations Using More AI

According to Morgan Stanley, cybersecurity organizations increasingly rely on AI in conjunction with traditional tools such as antivirus protection, data-loss prevention, fraud detection, identity and access management, intrusion detection, risk management and other core security areas. 

The report also noted that AI, which can analyze enormous sets of data and find patterns, is well suited to detecting attacks more accurately than humans; identifying and flagging suspicious emails often used in phishing campaigns; simulating attacks, which helps security teams spot potential vulnerabilities before cybercriminals exploit them; and analyzing huge amounts of incident-related data rapidly.

Fortinet is in a good position to help its customers with those tasks. The company's primary focus is on products, including firewalls, intrusion prevention systems and secure Web gateways, among others. 

Diverse Group Of Customers

Customers hail from a wide range of industries, as well as school districts, universities, state and local governments, and the federal government. 

In June, Fortinet participated in the Bank of America Global Technology Conference. Fortinet’s chief financial officer Keith Jensen said that chief information security officers are more focused on capital preservation and flexibility in payment terms than discounting, which B of A said is a positive for the company. 

After the conference, Bank of America boosted its price target on Fortinet to $83 from $75. Since Fortninet’s most recent quarterly report in early May, five analysts boosted their price targets. Rosenblatt Securities initiated coverage with a rating of “buy.”

Watch For Stock To Pull Back

MarketBeat’s Fortinet analyst ratings show a consensus view of “moderate buy,” with a price target of $72.57, a downside of 2.79%. At this juncture, with the stock posting a strong year-to-date run-up, it wouldn’t be surprising to see a pullback. 

As of July 6, shares were trading 8.6% above their 50-day moving average. That’s not a sky-high valuation relative to that price line, but it does indicate that the stock could be ready for some kind of correction or even a pullback with moving-average support. Either of those situations could offer a chance to purchase shares.

With a beta of 1.36, Fortinet stock is somewhat more volatile than the broader market. With a market capitalization of $58.61 billion, Sunnyvale, California-based Fortinet is a component of the S&P 500.