Fortinet, Inc.

FTNT Details

Integration with New Service Providers: Fortinet, Inc. (NASDAQ: FTNT) provides a platform that delivers broad, integrated, and automated protections from digital attack, securing critical devices, data, applications and connections from the data center to the cloud and to the home office. The market capitalization of the company as on 22 June 2021, stood at ~$39.50 billion. As per a recent announcement, the company has announced that four new service providers, which includes CommandLink, DNA, Syringa Networks and TIM (Telecom Italia) have selected Fortinet Secure SD-WAN to enhance their business and provide new value-added services to its customers.

New Offerings to Accelerate Network Operations: On 8 June 2021, the company has announced two new offerings to accelerate AIOps Network Operations with FortiMonitor and FortiAIOps. It is focused on extending its network monitoring beyond the Fortinet Security Fabric to third party network infrastructures, applications and clouds.

Q1FY21 Financial Performance: The company reported a decent performance during the quarter, with total revenue of $710.3 million, an increase of ~23% on the previous corresponding year. The total billings during the period stood at $850.6 million, reflecting an increase of ~27% on the previous year. The GAAP operating margin decreased by 310 basis points to 17.1%. it posted cash flow from operations at $315.9 million, and the free cash flow stood at $263.8 million.

Steady Increase in Revenue Levels (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business exposes it to cybersecurity risk, where customer data and records can be leaked or breached.

Outlook: The company expects revenue to be in the range of $733-$747 million in Q2FY21 and billings to be in the range of $860-$880 million. For the full year FY21, it anticipates revenue in the range of $3.08 billion to $3.13 billion and billing to be between $3.685-$3.745 billion.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  FTNT has recently announced the integration of the company’s Fortinet Secure SD-WAN to the Google Cloud Network Connectivity Center (NCC). The stock of FTNT is trading close to its 52-weeks’ high levels of $242.06. The stock of FTNT gave a positive return of ~103.82% in the past nine months and a positive return of ~69.31% in the past one year. On a technical analysis front, the stock of FTNT has a support level of ~$224.03 and a resistance level of ~$242.06. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the decent increase in top-line, integration with new service providers and launch of new offerings. For this purpose, we have taken peers such as Palo Alto Networks Inc (NYSE: PANW), F5 Networks Inc (NASDAQ: FFIV), FireEye Inc (NASDAQ: FEYE), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price and decline in operating margin, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the closing price of $241.90, up by 1.67% as on June 22, 2021.

FTNT Daily Technical Chart, Data Source: REFINITIV

Fastly, Inc.

FSLY Details

Q1FY21 Performance Update: Fastly, Inc. (NYSE: FSLY) provides an edge cloud platform that enables customers to create digital experiences in a quick, secured and reliable way. The market capitalization of the company as on 22 June 2021, stood at ~$6.51 billion. The company posted decent financial results during the period with a revenue of ~$85 million, reflecting an increase of ~35% on the previous corresponding period. It reported a GAAP operating loss of ~$50 million during the period and Non-GAAP operating loss of $13 million during the period. It delivered an improved Non-GAAP gross margin of 60.1% in Q1FY21, compared to 57.6% in Q1FY20. The company made a capital expenditure of $9 million during the period.

Decent Revenue & Gross Profit Performance (Source: Analysis by Kalkine Group)

Key Risks: It is faced with the risk of stiff competition in the sector and FSLY has to look for ways to keep its business updated and upgraded with the latest technological trends.

Outlook: The company expects to continue with its growth momentum going forward and expects revenue to be in the range of $84-$87 million in Q2FY21. It expects the Non-GAAP operating loss to be between $22-$18 million during the same period. It has upgraded its revenue guidance for the full year FY21 to be in the range of $380-$390 million, from $375-$385 million.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has announced that its Chief Financial Officer Adriel Lares will step down after five years of service and will be there with the company until a successor is appointed. The stock of FSLY is trading below its average 52-weeks’ levels of $136.50-$39.47. The stock of FSLY gave a positive return of ~25.40% in the past one month and a negative return of ~46.29% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the increase in top-line, optimistic guidance and upgraded revenues for FY21. For this purpose, we have taken peers such as Cloudflare Inc (NYSE: NET), F5 Networks Inc (NASDAQ: FFIV), CrowdStrike Holdings Inc (NASDAQ: CRWD), to name a few. Considering the expected upside in valuation and current trading levels, decent increase in top-line and upgraded guidance level, we recommend a ‘Buy’ rating on the stock at the closing price of $56.270, up by 0.66% as on 22 June 2021. 

FSLY Daily Technical Chart, Data Source: REFINITIV

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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