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Fortinet (FTNT) to Report Q1 Earnings: Is a Beat in Store?

Zacks Equity Research
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WF vs. BEN: Which Stock Should Value Investors Buy Now?

WF vs. BEN: Which Stock Is the Better Value Option?

Fortinet Inc. FFIV is set to report first-quarter 2018 results on May 3.

In the last-reported quarter, the company posted a positive earnings surprise of 10.3%. Notably, Fortinet has a strong earnings surprise history. The company’s results surpassed the Zacks Consensus Estimate, over the trailing four quarters, with an average positive earnings surprise of 20.1%.

Let’s see how things are shaping up prior to this announcement.

What the Zacks Model Unveils?

Our proven model shows that Fortinet is likely to beat on earnings this quarter as it possesses the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Fortinet carries a Zacks Rank of 3 and has an Earnings ESP of +2.70%.

The Zacks Consensus Estimate for the first-quarter earnings is pegged at 24 cents, which indicates a massive 41.2% year-over-year jump. The Zacks Consensus Estimate remained unchanged, over the past 30 days. Additionally, analysts polled by Zacks project revenues of roughly $390.8 million, up 14.7% from the year-ago quarter.

Fortinet, Inc. Price and EPS Surprise

Fortinet, Inc. Price and EPS Surprise | Fortinet, Inc. Quote

Factors at Play

We expect Fortinet’s initiative to change its business model to a subscription-based service provider to have driven the company’s bottom-line results in Q1. Subscription-based service is a high gross margin business (approximately 80%) compared with the hardware-centric model.

Notably, the company generated more than 50% of the total revenues from these services, which helped it generate a 50-basis-point gross-margin expansion in 2017. We believe this strategy will continue to improve the company’s top and bottom-line performances.

Nonetheless, the company’s sluggish revenue growth rate makes us cautious about its to-be-reported quarter top-line performance. Notably, over the last six quarters, the company’s revenue growth rate has been around 20%, significantly lower than the previous rates of more than 30%. Additionally, Fortinet’s first-quarter revenue guidance marks an even lower growth rate of 13.6-15.4%.

The company observed that organizations have been breaking the cybersecurity investment plans into phases and implementing the same over longer periods of time instead of making a single large investment. Therefore, the above-mentioned factor is likely to have affected the first-quarter revenues, the negative impact of which might have trickled down the bottom as well.

Stocks With Favorable Combinations

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Microchip Technology Incorporated MCHP has an Earnings ESP of +0.15% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics, Inc. ARW has an Earnings ESP of +0.66% and a Zacks Rank of 2.

CyberArk Software Ltd. CYBR has an Earnings ESP of +3.53% and a Zacks Rank of 3.

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