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Fortinet Expected to Deliver Solid Second Quarter Results

Solid results, slightly above expectations for billings, revenue and pro forma earnings per share, are expected from Fortinet, based on salesforce execution improvements, increasing traction in the enterprise market and comparison to last year being easy. Fortinet is expected to guide conservatively for third quarter billings, against modest expectations.
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With an increasing interest in Fortinet’s wireless access points from small businesses wanting Wi-Fi capabilities, the company is receiving positive reviews. A rising tide, which will benefit multiple companies, is forming as purchasing activity results from easier approvals for purchases and a willingness to buy well-known technologies. Fortinet’s second quarter is expected to exceed expectations.

Billings growth is forecast to be 15.6% year-to-year and EPS estimate is $0.10, which is a bit below consensus. It is believed that Fortinet has reset investor expectations to levels easier to meet, with recent execution being solid. As the company takes the right steps toward navigating the environment, investors should look for consistent execution and improvements to the market environment going forward to prove Fortinet can reaccelerate growth. The company should continue to post improved results over the prior year as it benefits from underlying growth in demand for their UTM solutions, strong competitive positioning and improving execution.

Fortinet should continue benefitting from market share gains in the near term, which should help 2014 financial results. Trading at 21 times the free cash flow estimate, the stock is believed to be undervalued based on the view of the company’s prospects for improving execution, resetting expectations, acquisition/takeout premium and potential reacceleration in growth. The Outperform rating remains the same.

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