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Fortinet (FTNT) Q3 Earnings: What's in Store for the Stock?

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Fortinet Inc. (FTNT - Free Report) is set to report third-quarter 2016 results on Oct 27. Last quarter, the company posted a positive earnings surprise of 50%. Let us see how things are shaping up for this announcement.

Factors to Consider

Fortinet’s network security solutions include firewall, VPN, application control, antivirus, intrusion prevention, web filtering, anti-spam and WAN acceleration. Although, the company reported better-than-expected results last quarter, it seems like it may disappoint investors this time.

This is so because Fortinet has recently lowered its third quarter revenue and earnings guidance, which has raised concerns over increasing price competition across the industry. Total revenue for the quarter is now estimated to be between $311 million and $316 million, down from its earlier guidance range of $319 million to $324 million. Non-GAAP earnings per share are projected to be in a band of 15–16 cents compared with the previous guidance of 17 cents to 18 cents.

The company cited a longer sales cycle and weakness in North America as the major reasons for the outlook cut. It should be noted that challenges highlighted by the company are similar to the ones that surfaced during the second quarter.

The company is witnessing slower sales completion in the enterprise and service provider markets. Ken Xie, Fortinet’s Chief Executive Officer (CEO) stated that "Enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year”, which is resulting in lengthening of deal cycles.

Fortinet also blamed poor sales execution issues in North America for the downbeat guidance. Apart from this, it cited macro-economic issues in Latin America and the U.K. for the dismal outlook.

FORTINET INC Price and EPS Surprise

FORTINET INC Price and EPS Surprise | FORTINET INC Quote

Earnings Whispers?

Our proven model does not conclusively show that Fortinet will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 3 cents. Hence, the difference is 0.00%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Fortinet currently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Seagate Technology Plc (STX - Free Report) , with an Earnings ESP of +2.97% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boyd Gaming Corporation (BYD - Free Report) , with an Earnings ESP of +16.67% and a Zacks Rank #2.

NVIDIA Corp. (NVDA - Free Report) , with an Earnings ESP of +8.93% and a Zacks Rank #3.

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