A promising entry point in Fortinet shares has opened, according to Guggenheim. The firm upgraded the stock to buy from neutral in a Sunday note. Analyst Raymond McDonough said he is “taking advantage of the digestion period” on shares, which tumbled 25% Friday following a mixed second-quarter earnings report. The company posted an earnings beat but missed analyst expectations on revenue. Revenue guidance for the current quarter also was lower than Wall Street’s forecasts. “While we recognize Fortinet faces several headwinds heading into the second half of the year, we do not believe the company is structurally impaired, nor do we believe its competitive positioning has deteriorated,” McDonough said. “On the contrary, when we first launched coverage of the company in January, we underscored our views that Fortinet is a high-quality technology company with a sustainable moat – and those views have not changed.” The analyst initiated a price target of $70 on shares, implying shares rallying 23.3% from their last close. Despite Friday’s sell-off, the stock is still up more than 16% year to date. Fortinet’s guidance of 13% year-over-year product revenue growth for fiscal year 2023 may have been too ambitious, McDonough said, given two years of outsized growth and potential for a cyclical downturn. However, he added that most of the risk fears have been priced into the stock following Friday’s selloff. “We do expect, however, for growth to reaccelerate into 2024 and while there may be incremental downside in the near term, at 26x our NTM EV/uFCF, we think current levels offer an opportunity to begin building a position in a differentiated, high-quality security asset,” said McDonough. Shares added more than 2% Monday during premarket trading. —CNBC’s Michael Bloom contributed to this report.
