It has been about a month since the last earnings report for Fortinet (FTNT Quick QuoteFTNT - Free Report) . Shares have added about 20.6% 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 catalysts.

Fortinet’s Q3 Earnings and Revenues Beat Estimates

Fortinet Inc. reported third-quarter 2022 non-GAAP earnings per share (EPS) of 33 cents, which topped the Zacks Consensus Estimate of 27 cents. The bottom line improved 65% from the year-ago quarter’s earnings of 20 cents per share.

Total revenues of $1.15 billion beat the Zacks Consensus estimate of $1.12 billion and improved 32.6% 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 in expanding into the adjacent addressable markets and boosting the firm’s global sales force aided Fortinet’s quarterly performance.

Quarter in Detail

Segment-wise, Product revenues jumped 39% year over year to $468.7 million. This upside can be attributed to the continued adoption of the FortiGate-based secure SD-WAN solution, as well as strong revenues of non FortiGate products and increased demand for integrated security fabric products.

Services revenues climbed 28.4% to $680.8 million.

Billings were up 32.6% to $1.41 billion on solid execution and growth across all regions.

As of Sep 30, 2022, deferred revenues were $4.19 billion, up 35% year over year.

Geographically, the EMEA region registered the highest top-line growth with a 37.3% increase, followed by the Americas’ 33.6% and APAC’s 22.7%.

During the September-end quarter, the company secured 153 total deals worth $1 million or more 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 non-GAAP gross margin contracted 30 basis points (bps) year over year to 76.2% in the third quarter of 2022. This reflects an expansion of 30 bps in the Product gross margin while Services gross margin remained flat.

Non-GAAP operating income jumped 45.3% to $324.9 million in the reported quarter, while non-GAAP operating margin increased 250 bps to 28.3%.

Balance Sheet & Cash Flow

Fortinet exited the third quarter with cash and cash equivalents and short-term investments of $1.70 billion, down from $1.73 billion reported at the end of second-quarter 2022.

During the reported quarter, FTNT generated operating and free cash flow of $483 million and $395.2 million, respectively. During the first nine months of 2022, the company generated an operating cash flow of $1.20 billion.

In the third quarter, the company bought back $500 million worth of shares and in the first nine months of 2022, it bought back $1.99 billion worth of shares.

Guidance

Fortinet issued impressive guidance for the fourth quarter and raised the same for the full-year 2022. For the fourth quarter of 2022, the company estimates revenues in the range of $1.275-$1.315 billion. Billings are estimated to be $1.665-$1.720 billion.

Non-GAAP gross margin is expected in the range of 75-76%, while non-GAAP operating margin is anticipated between 30% and 31%. Non-GAAP EPS is projected at 38-40 cents.

For 2022, Fortinet predicts revenues in the band of $4.410-$4.450 billion, up from the prior estimate of $4.350-$4.400 billion. However, billings are now expected in the range of $5.540-$5.595 billion compared with the earlier range of $5.560-$5.640 billion.

Non-GAAP EPS is now anticipated between $1.13 and $1.15, up from the previous range of $1.01-$1.06.

Non-GAAP gross margin and operating margin are now expected in the bands of 75-76% and 26-27%, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 14.85% due to these changes.

VGM Scores

At this time, Fortinet has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fortinet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Fortinet is part of the Zacks Security industry. Over the past month, Check Point Software (CHKP Quick QuoteCHKP - Free Report) , a stock from the same industry, has gained 7.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Check Point reported revenues of $577.6 million in the last reported quarter, representing a year-over-year change of +8.2%. EPS of $1.77 for the same period compares with $1.65 a year ago.

Check Point is expected to post earnings of $2.35 per share for the current quarter, representing a year-over-year change of +4.4%. Over the last 30 days, the Zacks Consensus Estimate has changed 0%.

Check Point has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.