Fortinet Targets 45% Growth-Margin Combo, $450 Million Refresh Boost: Analysts See Big Upside

Fortinet continues to gain traction among large enterprises, with 70% adopting SD-WAN functionality, 60% deploying hybrid virtual machines, and 8% adding security service edge (SSE) solutions.

Over 70% of enterprise customers have integrated firewalls, switches, and access points, supporting Fortinet’s convergence strategy. The company also cited consolidation benefits, with some organizations reducing security solutions from 200 to 60 by adopting Fortinet’s unified platform.

Fortinet reaffirmed its 2024 margin guidance of 80.8% gross margins and 33.4% operating margins. However, higher marketing investments to drive growth may result in slight margin reductions, with long-term gross margins normalizing to 79%–80%.

The analyst said Fortinet’s relatively low 26% U.S. revenue share compared to a commanding 70% firewall market share in Latin America. Expansion in the U.S. enterprise market is seen as a critical growth opportunity.

Fortinet outlined ambitious three-to-five-year targets, including 12% billings and revenue CAGR, 30% operating margins, mid-to-high 30% adjusted free cash flow (FCF) margins, and Rule of 45 compliance.

Ruykhaver projected fiscal 2025 revenue of $6.64 billion and EPS of $2.54. He projected fiscal 2026 revenue of $7.50 billion and EPS of $2.87.

RBC Capital: Bergstrom expressed optimism about Fortinet following its investor day, highlighting key growth opportunities and updates to financial targets.

The focus was on the customer journey across Secure Networking, Unified SASE, AI-driven SecOps, and the upcoming product refresh. Despite mixed reactions to the medium-term targets, the analysis emphasized a compelling long-term outlook, leading to an increased price target, reflecting the calendar year 2025 EV/FCF multiple of 32.5x.

Fortinet detailed cross-sell and upsell opportunities in Secure Networking, SASE, and SecOps. The analyst noted significant revenue potential, with Secure Networking starting from Data Center Firewalls and expanding through products like LAN/WLAN and 5G/OT for up to a 5x upsell.

Similarly, SASE growth builds from Edge Firewalls to Secure SD-WAN, culminating in Universal ZTNA for a 3x upsell. SecOps growth strategies revolve around advanced subscriptions and AI-driven SecOps, presenting up to a 4x upsell.

Bergstrom is optimistic about Fortinet’s 2025-2026 product refresh cycle, noting a significant increase in end-of-life units by 2026, which is expected to drive substantial upgrade activity.

With over 700,000 end-of-life units projected for 2026—10x the historical average—the refresh cycle could deliver robust product and service revenue. An additional refresh in 2027 with 350,000 units is expected to sustain growth.

Fortinet set medium-term targets, including 12%+ annual billings and revenue growth, operating margins exceeding 30%, and FCF margins in the mid-to-high 30% range.

The analyst updated his 2025 revenue estimate to $6.59 billion, with EPS adjusted to $2.21. 2026 revenue projections increased to $7.38 billion, with EPS revised to $2.40. These adjustments align with Fortinet’s focus on achieving the Rule of 45—a combination of revenue growth and operating margins.

BMO Capital: Bachman retained a neutral stance on Fortinet following its 2024 analyst day, emphasizing its medium-term growth prospects, significant refresh opportunities, and investments in emerging technologies.

The price target boost reflects increased confidence in Fortinet’s long-term strategy and growth potential.

Fortinet outlined three- to five-year targets, including a 12% compound annual growth rate (CAGR) for billings and revenue, operating margins exceeding 30%, and adjusted free cash flow (FCF) margins in the mid-to-high 30% range.

The analyst noted Fortinet’s efforts to achieve the “Rule of 45,” where the sum of revenue growth and operating margin meets or exceeds 45%. While near-term margins may face headwinds from increased R&D and go-to-market (GTM) investments, these efforts are expected to bolster long-term growth.

The 2026 refresh cycle involves 650,000 devices reaching end-of-support, representing $400–450 million in potential product revenue over two years. Bachman anticipates incremental revenue growth from upsell opportunities as customers upgrade low-end firewalls and adopt Fortinet’s broader solutions.

Additional refresh cycles are expected in 2027, involving even larger device volumes, creating sustained revenue opportunities through the decade’s end.

Fortinet highlighted Unified Secure Access Service Edge (SASE) as a key growth area, targeting its installed base of 40,000 SD-WAN customers. Analysts view SASE functionality embedded in FortiGates and FortiOS as a competitive advantage, enabling seamless upsell opportunities.

While Secure Networking contributes most of Fortinet’s billings (67%), SASE and Secure Service Edge (SSE) offerings are growing faster, positioning the company for increased billings in these categories.

Fortinet increased its total addressable market (TAM) projection from $183 billion in 2024 to $284 billion by 2028.

Security Operations now represents 57% of this TAM, highlighting its growing importance. The remaining TAM is divided among Secure Networking (26%) and Unified SASE (16%), with respective CAGRs of 13%, 7%, and 16% through 2028. Bachman noted Fortinet’s solutions can outpace market growth in these segments.

Fortinet continues to expand its network of points of presence (PoPs), aiming to provide cost-efficient, localized infrastructure for customers. Management anticipates these investments will take 5–10 years to deliver substantial returns, but early adoption by 70% of customers highlights their cost-effectiveness.

While PoPs may weigh on near-term free cash flow margins, they are expected to strengthen Fortinet’s long-term competitive positioning. Bachman projected fiscal 2025 revenue of $6.7 billion and EPS of $2.61.

BofA Securities: Liani remains optimistic about Fortinet’s long-term growth potential following its recent analyst day.

The company outlined strong three- to five-year guidance, supported by upcoming firewall refresh cycles, robust Unified SASE and Security Operations growth, and expanding recurring revenue streams. The price target boost reflects improved business trends and a higher valuation multiple.

Fortinet expects a substantial revenue boost from the 2026 end-of-support cycle for 650,000 FortiGate units, translating to a $400–$450 million product revenue opportunity.

An additional 350,000 units are projected to reach end-of-support in 2027. The analyst highlighted the company’s history of strong refresh-driven growth, including a 30% year-over-year product revenue increase in 2022, excluding acquisitions.

Despite management’s lack of 2025 guidance, analysts anticipate product revenue growth exceeding Street estimates of 6.6%.

New product initiatives are gaining traction, with Unified SASE annual recurring revenue (ARR) growing 22% year-over-year and Security Operations ARR rising 64% last quarter. Secure Service Edge (SSE), a minor component of SASE, posted a remarkable 500% ARR growth from a low base.

Fortinet plans to enhance disclosures of remaining performance obligations (RPO), which grew 15% year-over-year last quarter, reflecting its increasing SaaS revenue mix.

The company set long-term goals for 12% annual revenue and billings growth, aligning with blended market rates but exceeding competitors across all product categories in recent years.

Liani noted potential upside as Fortinet consistently outpaces market growth. The updated Rule of 45 targets (revenue growth plus operating margin) further underscores the company’s focus on profitability, replacing the previous Rule of 40 benchmarks.

Management projects gross margins of 79–80% over the long term, slightly below the 2024 guidance of 80.8%, due to a higher product revenue mix.

Operating margins are expected to stabilize around 32–33%, driven by investments in sales, marketing, and the integration of the Lacework acquisition. Adjusted free cash flow margins are projected to exceed 35% long term, with near-term margins potentially higher, despite cloud infrastructure investments.

Liani projects fiscal 2025 revenue of $6.61 billion and EPS of $2.42. The analyst expects fiscal 2026 revenue of $7.43 billion and EPS of $2.69.

Piper Sandler: Owens came away from Fortinet’s recent analyst day with a deeper understanding of the company’s growth strategies, long-term targets, and product refresh opportunities. While the updated guidance aligns broadly with expectations, analysts remain cautious about the near-term impact of initiatives.

Fortinet’s unified operating system and custom ASIC architecture remain foundational to its success. This approach strengthens its ability to cross-sell newer solutions within its large customer base while offering a distinct value proposition compared to competitors.

Owens noted this strategy positions Fortinet for continued market share growth.

Fortinet expects significant contributions from its upcoming firewall refresh cycle. With 650,000 FortiGate units set to reach end-of-support in 2026, management forecasts $400–$450 million in incremental product revenue from these upgrades over two years, with another 350,000 units due for a refresh in 2027.

The refresh is also expected to drive cross-sell opportunities, introducing customers to Fortinet’s expanding portfolio.

Fortinet updated its medium-term targets, projecting over 12% annual growth in revenue and billings, more than 30% operating margins, and free cash flow margins in the low-to-mid 30% range.

These figures support the company’s ambition to maintain a Rule of 45 profile, combining growth and margin efficiency. Owens considers these targets achievable, given the strong underlying market dynamics.

Unified SASE annual recurring revenue (ARR) grew 22% year-over-year in Q3 to $984 million, with a total addressable market (TAM) expected to reach $46 billion by 2028.

SecOps ARR increased by 64% year-over-year to $444 million, with a TAM forecasted to grow to $163 billion in the same period. Analysts see these offerings as critical to Fortinet’s capture of enterprise market share.

Fortinet plans to strengthen its position among large enterprise customers, especially in the U.S., which currently accounts for 40% of its business. Efforts include increased direct sales hiring, smaller territories for a more profound account focus, and strategic marketing initiatives. Fortinet’s organically developed platform differentiates it from competitors relying on acquisitions for growth.

The updates provide a more precise roadmap for Fortinet’s enterprise-level expansion and momentum in SASE and SecOps. However, the benefits of the refresh cycle and go-to-market investments may take time to materialize, keeping analysts cautious in the short term.

Owens expects fiscal 2025 revenue of $6.62 billion and EPS of $2.35. The analyst projects fiscal 2026 revenue of $7.48 billion and EPS of $2.64.

Goldman Sachs: Borges is optimistic about Fortinet following its recent analyst day in New York, highlighting promising long-term growth opportunities and a strategic focus on emerging products beyond its core firewall business.

The updated price target reflects expectations for both cyclical and secular growth drivers.

Fortinet shared its updated 3-5 year growth targets, projecting over 12% revenue and billings CAGR, with operating margins exceeding 30%. The analyst said these targets are conservative, given Fortinet’s historical outperformance and proven ability to gain market share in secure networking and firewalls.

Free cash flow (FCF) margins are forecasted in the mid-to-high 30% range, supported by continued growth across its product portfolio.

A significant refresh cycle is expected to begin in 2025, as approximately 25% of Fortinet’s installed base—around 650,000 units—reaches end-of-support by 2026. Management anticipates $400–$450 million in additional revenue from these upgrades over two years.

Borges noted that the upsell opportunity for low-end firewalls remains substantial, with management estimating a $12 incremental revenue potential for every $1 in firewall sales.

This includes $5 from secure networking, $3 from SASE, and $4 from Security Operations.

Fortinet continues to expand its footprint in Secure Access Service Edge (SASE), with annual recurring revenue (ARR) growing 22% year-over-year to $984 million. The analyst is encouraged by the scalability of Fortinet’s unified SASE architecture, which reduces costs compared to competitors and aligns with customer demand for integrated solutions.

The SASE TAM is expected to grow at a 16% CAGR, reaching $46 billion by 2028.

Fortinet disclosed an ARR of $1.4 billion, accounting for 23% of total annualized revenue, with significant contributions from emerging offerings like SD-WAN and SSE.

The company also highlighted its growing opportunity in operational technology (OT) security, with growth above 15% annually, fueled by increasing demand from industries lagging in digital transformation.

Fortinet plans to increase its sales force and reduce the number of accounts per manager to capitalize on enterprise market opportunities. These initiatives aim to address capacity constraints and enhance penetration into large enterprises, particularly in the U.S., which remains a critical growth area.

Borges raised Fortinet’s free cash flow estimates for 2025 and 2026 to $2.19 billion and $2.67 billion, respectively, from prior forecasts of $2.04 billion and $2.50 billion.

While short-term benefits from the refresh cycle and SASE momentum are anticipated, analysts highlight the need for execution in critical areas, particularly in the enterprise market. Fortinet remains a strong contender in secure networking, with an evolving portfolio that aligns with emerging market demands. Borges projects fiscal 2025 revenue of $6.74 billion and EPS of $2.45. The analyst expects fiscal 2026 revenue of $7.81 billion and EPS of $2.94.

Price Action: FTNT stock closed lower by 1.19% at $90.79 at the last check on Tuesday.

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