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Fortinet (FTNT) to Report Q2 Earnings: What Lies in Store?

Zacks Equity Research

Fortinet FTNT is slated to release second-quarter 2019 results on Aug 1.

Notably, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 14.66%.

In the last reported quarter, the company’s earnings and revenues surpassed estimates.

The top line was driven by strong growth in service revenues. Strength in EMEA and APAC regions was also a positive.

What to Expect

For the second quarter, the company expects revenues of $505-$515 million (midpoint at $510 million). The Zacks Consensus Estimate for revenues is pegged at $510.89 million, indicating a 15.77% increase from the year-ago quarter reported number.

Billings are estimated in the range of $585-$605 million.

Non-GAAP earnings per share are anticipated in the band of 49-51 cents. The Zacks Consensus Estimate stands at 50 cents, which is 21.95% higher than the year-ago quarter reported number.

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

Fortinet, Inc. Price and EPS Surprise

Fortinet, Inc. Price and EPS Surprise

Fortinet, Inc. price-eps-surprise | Fortinet, Inc. Quote

Factors to Consider

Fortinet is benefiting from strong momentum in FortiGate virtual machines, which is driving its private and public cloud billings. The shift in in revenue mix to the midrange FortiGates is expected to have been a tailwind for Product revenues in the to-be-reported quarter. Further, it expects to continue benefiting from SPU, SD-WAN ASIC and the FortiSPU SoC4.

The company expects around 60% of revenues from its existing deferred revenue balance, which was $1.8 billion at the end of the last reported quarter, giving a certain revenue predictability.

Healthy growth in deal pipeline is expected to benefit Fortinet’s upcoming quarterly results.

Fortinet is also expected to benefit from its constant efforts to drive enterprise growth.  Moreover, its partnership with the likes of Symantec SYMC is helping Fortinet secure large enterprise sales, and is expected to be a tailwind for second-quarter results.

However, capital expenditures between $25 million and $35 million, including construction spending, are expected to be an overhang on margins in the second quarter.

What the Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Fortinet has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are couple of stocks, which you may consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming release:

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International, Inc. CACI has an Earnings ESP of +4.02% and is a Zacks #2 Ranked stock.

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