by Ian Harvey
July 10, 2020
Shares of Fortinet are up 41% so far this year as it has been helped by the work-from-home environment, as enterprises seek to secure their communications from the threat of increased cyber-security during the COVID-19 pandemic.
And, Stock Options Made Easy “Armchair Trader” Members are well-positioned to benefit; and are already up 73% in two days based on a CALL OPTIONS trade. More is expected!
Due to the Covid-19 induced demand slump most stocks have performed badly this year, as restrictions on consumer movement, and change in buying behaviour have become the norm.
However, as in most situations, some stocks will do well if the circumstances are beneficial to them; and in this case, Covid-19 had minimal impact or the crisis presented new opportunities for certain stocks. One such stock has been Fortinet, which sells cybersecurity products and services.
Shares of Fortinet have risen 41% so far in 2020 helped by the work-from-home environment, as enterprises sought to secure their communications from the threat of increased attacks seeking to take advantage of the COVID-19 pandemic.
Not only that, Fortinet also delivered a first quarter earnings report in May that easily beat expectations, after introducing a noteworthy new firewall product. (More on this, in the recommendation sent to members, below).
Just weeks earlier, Fortinet introduced its FortiGate 4200F firewall, using its own custom in-house processor tailor-made for virtual private networks. According to Fortinet, the seventh-generation network processor can deliver between five and 15 times the speed of other security firewalls that use more generic CPUs.
The new product is well suited for today's work-from-home environment. As well, Fortinet has generally been able to successfully transition from hardware-based firewalls to today's more software-based cloud security solutions well. Fortinet's operational success, revealed in its positive earnings report, helped it have a big May, leading to its rebound from the March sell-off.
“Armchair Trader” Members executed a call options trade on Fortinet Inc on Wednesday, July 08, 2020, at a cost of $7.80; and the sell value of the option hit $13.50 yesterday – a potential profit already of 73%.
The recommended options trade for “Armchair Trader” Members.....
** OPTION TRADE: Buy FTNT SEPT 18 2020 150.000 CALL at approximately $6.50.
.....the stock jumped pre-market so entry price was $7.80 for those traders that managed to execute the trade.
Much of the story surrounding the “leaps and bounds” that Fortinet has experienced is stated below.....
The Recommended Trade…..
“Headquartered in Sunnyvale, CA, Fortinet Inc (NASDAQ: FTNT) is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. Its products and services are sold through a network of more than 20,000 channel partners worldwide including distributors, resellers, value-added resellers and managed service providers.
And, the cybersecurity company has been on a tear up the charts since the broad-market selloff earlier this year. Not only did the equity clear the $20 billion market cap level for the first time ever back in May, but the shares are now up nearly 30% year-to-date. Fortinet is the leading name in its sector, and sports even more potential when surrounding concerns regarding security for the upcoming presidential election. With major support emerging at the 40-day moving average and $130 level.
Fortinet last posted its earnings results on Wednesday, May 6th.
The software maker reported $0.60 earnings per share for the quarter, beating the consensus estimate of $0.50 by $0.10. The company had revenue of $576.90 million for the quarter, compared to analyst estimates of $554.22 million.
Fortinet had a net margin of 16.44% and a return on equity of 32.91%. Fortinet’s revenue was up 22.1% on a year-over-year basis. During the same period in the previous year, the business posted $0.46 EPS.
Fortinet is scheduled to announce its next earnings results after the market closes on Thursday, August 6th.
Wall Street brokerages expect Fortinet to post $0.65 earnings per share (EPS) for the current quarter. Fortinet posted earnings per share of $0.58 in the same quarter last year, which would indicate a positive year-over-year growth rate of 12.1%.
As well, the latest consensus estimate is calling for revenue of $598.82 million, up 14.78% from the prior-year quarter.
On average, analysts expect that Fortinet will report full-year earnings of $2.81 per share for the current financial year, with EPS estimates ranging from $2.70 to $2.90. For the next fiscal year, analysts anticipate that the company will post earnings of $3.30 per share, with EPS estimates ranging from $3.00 to $3.55.
Earnings growth has seen surging profit levels. The historical EPS growth rate for Fortinet is 116.2%. The company's EPS is expected to grow 13.9% this year, crushing the industry average, which calls for EPS growth of -9.7%.
The current-year earnings estimates for Fortinet have been revising upward. The Consensus Estimate for the current year has surged 2.7% over the past month.
Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Fortinet has an S/TA ratio of 0.65, which means that the company gets $0.65 in sales for each dollar in assets. Comparing this to the industry average of 0.48, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Fortinet looks attractive from a sales growth perspective as well. The company's sales are expected to grow 15.9% this year versus the industry average of 8.1%.
COVID Crisis and Effect…..
The U.S. stock market gained on Jul 2 as investor optimism about market recovery from the COVID-19 crisis got a boost after the U.S. Labor Department reported an unexpected drop in unemployment rate. According to the latest data released by the U.S. Bureau of Labor Statistics, the unemployment rate fell to 11.1% in June from 13.3% in May.
The U.S. economy added 4.8 million jobs in June, marking the second consecutive month of gains following more than 20 million of job losses recorded in April due to the pandemic. In May, the economy created 2.7 million jobs, bringing down the unemployment rate to 13.3% from the post-World War II high of 14.7% in April.
Notably, the stock market is in a recovery mode since April after bottoming out in late-March due to the pessimism surrounding the coronavirus crisis. Optimism over a potential vaccine for COVID-19 and an uptick in economic activities, with lockdown measures starting to ease, are mainly driving the U.S. stock market.
The latest data released by the Labor Department has further boosted investor confidence about the economy’s fast recovery from the coronavirus crisis.
And, the technology sector has played a crucial role in the quicker-than-expected recovery of the stock market, opening up newer avenues of growth for tech companies such as Fortinet.
Fortinet is positioned well to capitalize on the rising demand for security and networking products amid the coronavirus crisis, which has compelled a huge workforce globally to work remotely. It is also benefiting from robust growth in Fortinet Security Fabric, cloud and SD-WAN offerings. Also, continued deal wins, especially those of high value, are key growth drivers for this company.
Fortinet is gaining from rising cyber-attack
risks that are propelling demand for its FortiMail platform, which can be used
to block specific file types containing certain keywords, such as those related
to coronavirus. This company is also capable of sending attachments to the
FortiSandbox solution to check whether the file displays any malicious
The Consensus Estimate for this $22.38-billion company’s 2020 earnings stands at $2.81 per share, having moved 9.3% north over the past 60 days.
Fortinet had its price objective lifted by Wedbush from $150.00 to $170.00 in a research report released last month. They currently have an outperform rating on the software maker’s stock.
Several other equities analysts have recently commented on the company…..
One investment analyst has rated the stock with a sell rating, fifteen have assigned a hold rating and thirteen have assigned a buy rating to the stock. The company presently has an average rating of “Hold” and an average price target of $123.88.
The stock has a market cap of $22.83 billion, a price-to-earnings ratio of 65.28, a PEG ratio of 5.15 and a beta of 1.01. The company has a fifty day moving average price of $138.28 and a two-hundred day moving average price of $116.43. Fortinet has a 1-year low of $70.20 and a 1-year high of $149.69.”
There seems to be some scepticism building amongst analysts as they view the solid run in the first half by Fortinet and ponder over whether the stock price will continue its run upwards.
But, Fortinet keeps surging ahead despite this fact, particularly since cyberattacks are becoming more prevalent.
Cybercriminals use various ways to attack systems, including ransomware, denial-of-service, SQL injection attack, etc. Notably, ransomware is the most profitable malware, causing maximum financial damages to an individual or organization. It infects a computer to encrypt files or systems. Typically, the victim has to pay a ransom amount for data retrieval.
Fortinet’s Security Fabric elements like FortiMail, FortiGate, FortiClient, FortiSandbox and FortiAnalyzer can detect, prevent and mitigate damages caused by the WannaCry ransomware.
Will Fortinet Stock Move Higher?
Is It Too Late To Jump On The Action?
Will Fortinet Shares Continue To Rise?
Will We Recommend Another Fortinet Options Trade?
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Join us here at Stock Options Made Easy, and find out our trades moving forward.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!