Fortinet Earnings: Increased Focus on Execution in Higher Growth Areas Is a Welcome Sight

We are increasing our fair value estimate for wide-moat Fortinet to $77 from $60 after the firm reported strong fourth-quarter results to close out fiscal 2023. Along with strong quarterly results, we are impressed by the continued traction of Fortinet’s Secure Access Service Edge, or SASE, and security operations, or SecOps, businesses. As a result, we are raising our medium- to long-term growth and profitability forecasts for Fortinet as we model in higher software sales over our explicit forecast. Along with an improved financial outlook, we believe investing in newer areas of security could help strengthen the firm’s economic moat, as well. By cross-selling these newer security solutions to its existing customer base of more than 600,000 customers, Fortinet can increase the switching costs associated with its product portfolio. From a valuation perspective, with shares trading up after hours, we view them as fairly valued relative to our updated fair value.