Fortinet Inc Valuation – February 2019 $FTNT

Company Profile (excerpt from Reuters): Fortinet, Inc., incorporated on November 28, 2000, is a network security company. The Company provides cyber security solutions to a range of enterprises, service providers and government organizations across the world. It provides protection against cyber-attacks and the technology to take on security performance requirements of the network. It offers a range of security products and solutions, providing customers with an integrated network security architecture and a source of threat intelligence to identify and minimize security gaps. The Company’s network security solution consists of FortiGate physical, software and cloud solutions, which are deployable in the business environments of enterprises, service providers and small and medium-sized businesses, as well as government organizations. These platforms provide a range of integrated security and networking functions to help protect data, applications and users from network- and content-level security threats.


Downloadable PDF version of this valuation:

ModernGraham Valuation of FTNT – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,931,162,505 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 54.37% Pass
6. Moderate PEmg Ratio PEmg < 20 160.12 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 16.11 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $0.51
MG Growth Estimate 13.65%
MG Value $18.29
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $7.40
MG Value based on 0% Growth $4.34
Market Implied Growth Rate 75.81%
Current Price $81.77
% of Intrinsic Value 447.19%

Fortinet Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.27 in 2014 to an estimated $0.51 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 75.81% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Fortinet Inc revealed the company was trading above its Graham Number of $9.86. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 160.12, which was above the industry average of 56.55. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.17.

Fortinet Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.17
Graham Number $9.86
PEmg 160.12
Current Ratio 1.87
PB Ratio 16.11
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $2,078,100,000
Total Current Liabilities $1,111,900,000
Long-Term Debt $0
Total Assets $2,763,500,000
Intangible Assets $43,800,000
Total Liabilities $1,871,900,000
Shares Outstanding (Diluted Average) 175,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.23
Dec2017 $0.18
Dec2016 $0.18
Dec2015 $0.05
Dec2014 $0.15
Dec2013 $0.26
Dec2012 $0.40
Dec2011 $0.38
Dec2010 $0.26
Dec2009 $0.39
Dec2008 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.51
Dec2017 $0.16
Dec2016 $0.16
Dec2015 $0.19
Dec2014 $0.27
Dec2013 $0.33
Dec2012 $0.34
Dec2011 $0.28
Dec2010 $0.19
Dec2009 $0.13

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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