Cyber security firm Fortinet Inc (NASDAQ:FTNT) warned of a threat to its Q3 profits due to slower, more strategic buying by enterprises and problems in sales execution.
The announcement panicked investors into pressing the Sell button, and Fortinet shares slid a sharp 10.06% to close Wednesday at $30.66 with 21.22 million shares traded.
An increase in the share repurchase program by $100 million did little to soothe sentiment, and in fact the entire cybersecurity segment, a darling of investors, was afflicted by the profit miss at Fortinet.
Symantec Corporation was down 0.48%, Proofpoint Inc shed 2.11%, Fireye lost 1.43% and Cyberark Software declined 3.69%.
Fortinet Inc (NASDAQ:FTNT) Q3 issues
“Our third quarter results were primarily impacted by the lengthening of deal cycles as enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year. We also encountered sales execution challenges in the North America resulting from the newness of our sales organization, as well as macro issues in Latin America and the U.K.,” said Ken Xie, founder, chairman and chief executive officer.
As a result, Q3 revenue is expected to be in the range of $311 million-$360 million compared to previous guidance of $319 million-$324 million. EPS per share is now projected to be $0.15 to $0.16 versus guidance of $0.17 to $0.18.
Market expectation for EPS was $0.18 per share.
Analysts rethink Fortinet Inc (NASDAQ:FTNT) after Q3 warning
Analysts at Morgan Stanley downgraded the stock to Equal Weight.
Stiffens cut its rating to Equal Weight from Overweight and reduced the price target from $43 to $32.
Analysts at UBS reiterated their Buy rating but lowered the price target from $42 to $40.
Targets were also cut at Wunderlich (Buy rating) from $45 to $42 and at Dougherty & Co (Buy rating) from $40 to $35.
RBC Capital Markets kept intact their Sector Perform rating but trimmed their profit target from $37 to $30.
Technically, it is interesting that shares in Fortinet Inc (NASDAQ:FTNT) met with repeated selling around the $37.35 level, which was tested six times since July. On the daily chart, the stock has clearly plunged out of an ascending triangle pattern, as well as fallen through its 200 day moving average with high volume.
The outlook for the stock continues to be weak.