Digital Transformation Will Expand Integrated Cybersecurity Solutions

Key Takeaways

• Expanding integrated cybersecurity solutions and a pivot to high-margin, recurring services are boosting revenue quality, margins, and long-term cash flow stability.
  
• Proprietary technology, heavy R&D investment, and platform convergence are extending Fortinet's competitive moat and driving greater customer loyalty and cross-selling opportunities.
  
• Heavy reliance on hardware refresh cycles and legacy customer upselling, combined with rising costs and competition, threatens future revenue growth, margins, and market expansion.

Catalysts

Provides cybersecurity and convergence of networking and security solutions worldwide.

• Rapidly growing global cybersecurity threats and expanding digital transformation (cloud, IoT, remote work) are sustaining robust demand for integrated, scalable cybersecurity solutions-Fortinet's expanding customer base, strong growth in large enterprise deals, and consistent share gains in high-growth verticals (e.g., financial services, OT/IoT) suggest ongoing top-line revenue acceleration.
  
• Increasing regulatory requirements around data security and infrastructure protection (e.g., GDPR, critical infrastructure rules) are forcing more organizations to upgrade their security posture, leading to significant upgrade cycles and opportunities for cross-selling next-gen SASE and AI-driven solutions-supporting both near
• and long-term revenue/EPS growth.
  
• Fortinet's successful pivot toward high-margin, recurring software, subscription, and services revenue-evidenced by rapid ARR growth in Unified SASE (22%), SecOps (35%), and attached/adjacent cloud-based services-is structurally expanding gross and operating margins, decreasing business cyclicality, and boosting long-term earnings quality.
  
• Heavy investment in proprietary infrastructure and R&D, including large-scale global data centers, SOC/NOC capabilities, and unique ASIC-based technology, is enhancing cost efficiency, enabling differentiated performance, and extending Fortinet's competitive moat-positioning margins and market share for further expansion as the industry shifts to integrated security and networking.
  
• Strong channel and direct sales execution, combined with an integrated Security Fabric/platform approach (convergence of SASE, SD-WAN, firewall, and AI security), is driving customer stickiness, increasing multi-product adoption rates, and unlocking sizable cross-sell/upsell potential-contributing to higher customer LTV, stable revenue visibility (RPO/ARR), and improving long-term cash flow generation.

Fortinet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortinet's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.6% today to 26.4% in 3 years time.
• Analysts expect earnings to reach $2.4 billion (and earnings per share of $2.94) by about September 2028, up from $1.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.7 billion in earnings, and the most bearish expecting $1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.5x on those 2028 earnings, up from 31.5x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Fortinet Future Earnings Per Share Growth

Risks

• The ongoing hardware firewall refresh cycle (with large cohorts in 2026 and smaller, lower revenue cohorts in 2027) is providing a significant near-term tailwind, suggesting that once this upgrade demand is met, product revenue growth could decelerate unless the company is able to meaningfully accelerate new product or service adoption-potentially impacting future revenue growth after the cycle ends.
  
• Despite strong cloud and SASE growth momentum, the vast majority (>90%) of SASE wins are from the existing firewall customer base, signaling a risk that expansion could be limited if Fortinet fails to penetrate greenfield or competitive accounts, which may cap long-term total addressable market expansion and revenue upside.
  
• There is continued pressure on service revenue growth, partly due to timing issues around customer hardware consolidation and elongated sales cycles, as well as a deceleration in deferred revenue recognition from the COVID surge years; if not offset by significantly higher upsell, this trend could compress gross margins and slow overall earnings growth.
  
• Fortinet is investing heavily in infrastructure ($380M–$430M in 2025) and direct enterprise sales, which, while potentially necessary for long-term positioning, has resulted in operating margin declines and poses an execution risk if sales growth in SASE/cloud and large enterprise deals does not consistently outpace these elevated costs-potentially reducing long-term net margins and free cash flow.
  
• The industry's ongoing shift toward cloud-native, security-as-a-service, and platform consolidation-where hyperscalers and larger competitors offer broad security suites-could diminish demand for Fortinet's legacy appliance-heavy solutions and mid-term SASE leadership, heightening the risk of revenue and margin pressure if Fortinet's product and platform differentiation does not keep pace with changing buyer preferences.

Valuation

• The analysts have a consensus price target of $90.322 for Fortinet based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $67.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.2 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 36.5x, assuming you use a discount rate of 8.4%.
• Given the current share price of $79.84, the analyst price target of $90.32 is 11.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.