Fortinet Inc: A Great Cybersecurity Growth Story Set to Explode Higher
Marijuana Business, Stocks, Finance, & Investing August 27, 2019 MJ Shareholders 0
Fortinet: A Cybersecurity Play Delivering Huge Free Cash Flow
The ongoing cybersecurity threats from both domestic and foreign players will likely only accelerate as bandwidth speeds move towards “5G” and the globe becomes even more interconnected.
In this space, a fantastic large-cap play on cyberattacks is Fortinet Inc (NASDAQ:FTNT), which is generating impressive revenue and profits growth along with truckloads of free cash flow.
FTNT stock is currently trading at the midpoint of its 52-week range of $64.41 to $96.96, up a mere 0.44% over the past year, inline with the Nasdaq and slightly trailing the S&P 500.
Chart courtesy of StockCharts.com
Fortinet has been around for nearly two decades, developing advanced integrated cybersecurity solutions to protect critical information technology assets.
The company has developed a broad user base worldwide that includes over 290,000 companies and the majority of the Fortune 500.
My Bull Thesis for FTNT Stock
As I previously said, Fortinet Inc is a beast in delivering strong fundamental growth.
From 2014 to 2018, Fortinet managed to increase its revenues in the past four straight years, with revenues more than doubling from 2014, powered by strategic acquisitions along the way.
The compound annual growth rate was a healthy 23.64% during this time frame.
| Fiscal Year | Revenue (Billions) | Growth |
| 2014 | $0.77 | |
| 2015 | $1.01 | 31.0% |
| 2016 | $1.28 | 26.4% |
| 2017 | $1.49 | 17.2% |
| 2018 | $1.80 | 20.5% |
(Source: “Fortinet,” MarketWatch, last accessed August 23, 2019.)
The expected revenue growth rate is estimated to moderate to 17.2% to $2.11 billion in 2019, followed by 13.5% to $2.4 billion in 2020. (Source: “Fortinet, Inc. (FTNT),” Yahoo! Finance, last accessed August 23, 2019.)
At the same time, Fortinet has been ramping up its earnings before interest, taxes, depreciation, and amortization (EBITDA) and profitability on both a generally accepted accounting principles (GAAP) and adjusted basis.
EBITDA increased in the last three straight years and has exploded from $85.61 million in 2014 to $377.0 million in 2018, up 125.54% versus 2017.
| Fiscal Year | Revenue (Millions) | Growth |
| 2014 | $86.61 | – |
| 2015 | $57.36 | -33% |
| 2016 | $95.76 | 67% |
| 2017 | $167.42 | 74.8% |
| 2018 | $377.42 | 125.5% |
(Source: MarketWatch, op cit.)
Fortinet grew its GAAP diluted earnings per share (EPS) from a mere $0.15 per diluted share in 2014 to $1.91 per diluted share in 2018.
| Fiscal Year | GAAP Diluted EPS | Growth |
| 2014 | $0.15 | – |
| 2015 | $0.05 | -69.7% |
| 2016 | $0.18 | 302.9% |
| 2017 | $0.18 | -3.4% |
| 2018 | $1.91 | 981.7% |
A bullish sign is the rising earnings estimates for FTNT stock over the past 90 days for both 2019 and 2020.
On an adjusted basis, FTNT is expected to generate profits of $2.24 per diluted share in 2019, up from $1.84 in 2018, and follow with as much as $2.59 per diluted share in 2020. (Source: Yahoo! Finance, op cit.)
Fortinet has beaten the consensus EPS estimates in four consecutive quarters, so we could see another beat this year.
The company has also consistently produced positive free cash flow (FCF) marked by four straight years of growth. FCF has more than tripled from 2014 to 2018.
| Fiscal Year | Revenue (Millions) | Growth |
| 2014 | $164.39 | – |
| 2015 | $245.19 | 49.2% |
| 2016 | $278.53 | 13.6% |
| 2017 | $459.09 | 64.8% |
| 2018 | $585.90 | 27.6% |
(Source: MarketWatch, op cit.)
Fortinet has a mere $37.5 million in debt on its balance sheet while holding a war chest of $1.83 billion in cash. This will afford FTNT financial flexibility. (Source: Yahoo! Finance, op cit.)
Analyst Take
At first glance, FTNT stock is not cheap, trading at 32.57 times its 2020 consensus EPS and a price-to-earning-growth ratio of 2.02.
But Fortinet stock deserves a premium multiple, given its expected growth and the bullish outlook for the cybersecurity sector.
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