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Will Fortinet's Cash Flow Profile Support the Stock Amid Higher Capex?
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Key Takeaways
Fortinet's strong cash generation supports its planned $390-$420M infrastructure spending in 2026.
FTNT's Q3 free cash flow surged 52% to $865M, with a 41.6% margin, while cash reserves reached $5.32B.
Fortinet faces slower Q4 revenue growth, higher cash taxes and buybacks that could pressure free cash flow.
Fortinet (FTNT - Free Report) is heading into the fourth quarter with heavy capital spending, but its cash generation suggests it can absorb the outlay comfortably. The company now expects 2026 infrastructure investments of $390 million to $420 million, with $180 million to $210 million set for the fourth quarter alone. That is nearly triple the $64.2 million it spent on property and equipment in the third quarter. The money goes into data centers and points of presence that underpin its cloud-delivered security. Two October launches reinforce that push: the FortiLink SASE service and the FortiGuard Inline AI Security Service.
Forward indicators support Fortinet's ability to fund this spending. Fourth-quarter billings are projected at $2.775-$2.925 billion, implying 20% growth at the midpoint. Full-year billings guidance was raised to $9.568-$9.718 billion. Service revenues are guided at $5.150-$5.170 billion for 2026, which gives the company a recurring base of cash inflows. Deferred revenues reached $7.93 billion at the end of September, up from $7.12 billion at the end of 2025, offering visibility into future collections. Full-year non-GAAP operating margin guidance of 36.5% to 37.5% suggests the spending won't meaningfully hurt profitability.
Recent results add a cushion. In the third quarter, operating cash flow rose 44% year over year to $946 million. Free cash flow jumped 52% to $865 million, a 41.6% margin, up sharply from 32.9% a year ago. Year-to-date free cash flow reached $2.84 billion, up 74%, and cash, cash equivalents and investments totaled about $5.32 billion.
There are still pressure points. Fourth-quarter revenue growth is guided at 15% at the midpoint, slower than the third quarter's 20%. Non-GAAP operating margin guidance of 35.5% to 37.5% is below the third quarter's record of 38.2%. Fourth-quarter cash taxes of $80 million to $130 million add to outflows, and the expanded $2 billion buyback authorization will compete for the same cash. Overall, Fortinet's cash flow looks strong enough to fund higher capex, though the jump in spending could lower free cash flow as a share of revenue in the near term.
FTNT Cash Flow vs. PANW and CRWD
Palo Alto Networks (PANW - Free Report) and CrowdStrike (CRWD - Free Report) also generate strong cash flow, though how much of their revenue becomes free cash flow differs from Fortinet. Palo Alto Networks reported fourth-quarter fiscal 2026 net cash provided by operating activities of $1.4 billion and adjusted free cash flow of $1.3 billion. It ended fiscal 2026 with a 38.4% adjusted free cash flow margin. For fiscal 2027, Palo Alto Networks expects that margin to be 38.0%. CrowdStrike posted record second-quarter fiscal 2027 operating cash flow of $530.3 million and free cash flow of $377.4 million, about 26% of revenue. The gap between those two figures points to heavy investment spending, though CrowdStrike held $5.01 billion in cash.
Fortinet shares have gained 54.2% in the year-to-date period, underperforming the Zacks Security industry’s growth of 71.3%.
FTNT’s Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, FTNT appears overvalued, trading at a forward 12-month price-to-earnings ratio of 31.68, higher than the broader Zacks Computer and Technology sector’s average of 17.24. The company carries a Value Score of D.
FTNT’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Fortinet’s earnings is pegged at $3.59 per share for 2026, which implies year-over-year growth of 30.07%.
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Will Fortinet's Cash Flow Profile Support the Stock Amid Higher Capex?
Key Takeaways
Fortinet (FTNT - Free Report) is heading into the fourth quarter with heavy capital spending, but its cash generation suggests it can absorb the outlay comfortably. The company now expects 2026 infrastructure investments of $390 million to $420 million, with $180 million to $210 million set for the fourth quarter alone. That is nearly triple the $64.2 million it spent on property and equipment in the third quarter. The money goes into data centers and points of presence that underpin its cloud-delivered security. Two October launches reinforce that push: the FortiLink SASE service and the FortiGuard Inline AI Security Service.
Forward indicators support Fortinet's ability to fund this spending. Fourth-quarter billings are projected at $2.775-$2.925 billion, implying 20% growth at the midpoint. Full-year billings guidance was raised to $9.568-$9.718 billion. Service revenues are guided at $5.150-$5.170 billion for 2026, which gives the company a recurring base of cash inflows. Deferred revenues reached $7.93 billion at the end of September, up from $7.12 billion at the end of 2025, offering visibility into future collections. Full-year non-GAAP operating margin guidance of 36.5% to 37.5% suggests the spending won't meaningfully hurt profitability.
Recent results add a cushion. In the third quarter, operating cash flow rose 44% year over year to $946 million. Free cash flow jumped 52% to $865 million, a 41.6% margin, up sharply from 32.9% a year ago. Year-to-date free cash flow reached $2.84 billion, up 74%, and cash, cash equivalents and investments totaled about $5.32 billion.
There are still pressure points. Fourth-quarter revenue growth is guided at 15% at the midpoint, slower than the third quarter's 20%. Non-GAAP operating margin guidance of 35.5% to 37.5% is below the third quarter's record of 38.2%. Fourth-quarter cash taxes of $80 million to $130 million add to outflows, and the expanded $2 billion buyback authorization will compete for the same cash. Overall, Fortinet's cash flow looks strong enough to fund higher capex, though the jump in spending could lower free cash flow as a share of revenue in the near term.
FTNT Cash Flow vs. PANW and CRWD
Palo Alto Networks (PANW - Free Report) and CrowdStrike (CRWD - Free Report) also generate strong cash flow, though how much of their revenue becomes free cash flow differs from Fortinet. Palo Alto Networks reported fourth-quarter fiscal 2026 net cash provided by operating activities of $1.4 billion and adjusted free cash flow of $1.3 billion. It ended fiscal 2026 with a 38.4% adjusted free cash flow margin. For fiscal 2027, Palo Alto Networks expects that margin to be 38.0%. CrowdStrike posted record second-quarter fiscal 2027 operating cash flow of $530.3 million and free cash flow of $377.4 million, about 26% of revenue. The gap between those two figures points to heavy investment spending, though CrowdStrike held $5.01 billion in cash.
FTNT’s Share Price Performance, Valuation & Estimates
Fortinet shares have gained 54.2% in the year-to-date period, underperforming the Zacks Security industry’s growth of 71.3%.
FTNT’s Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, FTNT appears overvalued, trading at a forward 12-month price-to-earnings ratio of 31.68, higher than the broader Zacks Computer and Technology sector’s average of 17.24. The company carries a Value Score of D.
FTNT’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Fortinet’s earnings is pegged at $3.59 per share for 2026, which implies year-over-year growth of 30.07%.
Fortinet, Inc. Price and Consensus
Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote
Fortinet currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.