After announcing mixed results for FY 2016, Fortinet IncFTNT 2.15% faces “a more positive set up,” with growth expected to stabilize in FY 2017 on the back of easier comps and durable renewals, Morgan Stanley’s Melissa Gorham said in a report. She upgraded the rating on the company from Equal Weight to Overweight, while raising the price target from $33 to $39.
Gorham expects FY 2017 to be a year of operating leverage for Fortinet.
Reasons To Upgrade
Gorham cited three reasons to be more bullish on the company’s performance into FY17:
Stable Demand Environment: The latest CIO survey indicates that security continues to feature high on the priority list of enterprises and “a bipartisan priority for governments.” Growth rates in the security industry are expected to rise in FY 2017.
More Sustainable Top-Line Growth: “Fortinet's challenges with enterprise traction and service provider growth should alleviate in FY17. A competitive product offering, durable renewal base, and better sales productivity as new sales head mature (and benefit from additional training) should stabilize the topline growth trends,” the analyst wrote.
Significant Opportunity For Operating Leverage: Improvements in productivity and activist pressure could result in higher margin expansion than the consensus expectation of +150 bps year-over-year.