It has been about a month since the last earnings report for Fortinet (FTNT Quick QuoteFTNT - Free Report) . Shares have added about 6.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fortinet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fortinet Earnings & Revenues Beat Estimates in Q1

Fortinet Inc. delivered first-quarter 2022 non-GAAP earnings per share (EPS) of 94 cents, which beat the Zacks Consensus Estimate of 79 cents. The bottom line improved from the year-ago quarter’s earnings of 81 cents per share.

Total revenues of $954.8 million surpassed the consensus mark of $883.5 million and improved 34% year over year. The top line was driven by strong demand for the company’s FortiGate technology, which includes a security processing unit, an integrated Security Fabric platform and hybrid multi-cloud offerings.

Strategic investments in developing powerful products and services, and efforts to expand into the adjacent addressable markets and boost the firm’s global sales force aided Fortinet’s quarterly performance.

Quarter in Detail

Segment-wise, Product revenues jumped 54% year over year to $371 million. This uptick was supported by the continued adoption of the FortiGate-based secure SD-WAN solution as well as strong revenues at non-FortiGate products and increased demand for integrated security fabric products.

Services revenues climbed 24.3% to $583.8 million.

Billings were up 36.4% to $1.16 billion on solid execution and growth across all regions. Bookings surged 50% year over year to $1.28 billion, while the backlog was $278.3 at the close of the first quarter.

Geographically, the APAC region registered the highest top-line growth with a 57.4% increase, followed by America’s 31.5% and the EMEA’s 25.5%.

During the March-end quarter, the company secured 90 total deals worth equal to or more than $1 million each. Secure SD-WAN continued to be the leading contributor to growth in terms of the number of deals worth more than $1 million in the quarter.

Margins

The gross margin contracted 450 basis points (bps) year over year to 74.4% in the first quarter of 2022. This reflects a contraction of 200 bps in the Services gross margin and 520 bps in the Product gross margin.

Non-GAAP operating income jumped 20.9% to $210.2 million in the reported quarter, while non-GAAP operating margin shrunk 250 bps to 22%.

Balance Sheet & Cash Flow

Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $2.11 billion, down from $2.51 billion reported at the end of fourth quarter 2021.

During the January-March period, FTNT generated operating and free cash flow of $396.1 million and $273.5 million, respectively.

In October 2021, the company increased its share-repurchase authorization by $1.25 billion. During the first quarter, the company bought back $691.2 million worth of shares. As of Mar 31, 2022, the company had approximately $830 million left under the ongoing authorization, which is set to expire on Feb 28, 2023.

Guidance

Fortinet issued impressive guidance for the second quarter and revised the same for full-year 2022. For the second quarter of 2022, the company estimates revenues in the range of $1.005 billion to $1.035 billion. Billings are estimated to be $1.05-$1.09 billion.

Non-GAAP gross margin is expected in the range of 74.5% to 76%, while non-GAAP operating margin is anticipated between 22% and 23.5%. Non-GAAP EPS is projected at $1.05-$1.10.

For 2022, Fortinet now predicts revenues in the band of $4.350-$4.400 billion compared with the prior guided range of $4.275 billion to $4.325 billion. Billings are expected in the band of $5.500 billion to $5.580 billion now, compared with the earlier range of $5.40 billion to $5.48 billion.

Non-GAAP EPS is now anticipated between $5.00 and $5.15, up from the previous range of $4.85-$5.00.

Non-GAAP gross margin and operating margin are still expected in the bands of 74-76% and 24-26%, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -9.55% due to these changes.

VGM Scores

At this time, Fortinet has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fortinet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Fortinet belongs to the Zacks Security industry. Another stock from the same industry, Check Point Software (CHKP Quick QuoteCHKP - Free Report) , has gained 5.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Check Point reported revenues of $542.7 million in the last reported quarter, representing a year-over-year change of +6.9%. EPS of $1.57 for the same period compares with $1.54 a year ago.

Check Point is expected to post earnings of $1.61 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate has changed -0.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Check Point. Also, the stock has a VGM Score of C.