We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Fortinet (FTNT - Free Report) raised its 2026 outlook for the third time this year after third-quarter results exceeded the midpoint of guidance across billings, revenues, operating margin and earnings. Revenues rose 20% to $2.08 billion, billings jumped 29% to $2.34 billion, and product revenues surged 37% to $765 million. Non-GAAP earnings rose 23% to 91 cents per share, and non-GAAP operating margin reached 38.2%. However, decelerating product growth, a softer service revenue trajectory and near-term margin pressure suggest that investors are better off holding the stock or waiting for a more attractive entry point.
Fortinet shares have gained 61.9% in the year-to-date period, underperforming the Zacks Security industry’s growth of 69.5%. The underperformance largely reflects the sharp post-earnings sell-off, as investors focused on product revenue growth slowing from 52% in the second quarter and a muted service revenue outlook, rather than the headline beat.
FTNT’s Price Performance
Image Source: Zacks Investment Research
Platform Consolidation and OT Wins Sustain Demand
Fortinet’s growth remains anchored in its unified networking and security platform. SASE firewall billings grew 31% in the third quarter, while the total value of deals above $1 million grew 51%, highlighting enterprise appetite for vendor consolidation. Notable wins included an eight-figure competitive operational technology (OT) deal with a large transportation company and an eight-figure deal to standardize and secure 1,500 store locations for a large U.S. retailer. Fortinet was also named a Leader in the 2026 Gartner Magic Quadrant for Hybrid Mesh Firewall, ranking highest for Ability to Execute. Management continues to view the first quarter of 2026 as the trough for service revenue growth, though ramped service activations for large customers and expansion deals that consolidated existing service arrangements into enterprise agreements weighed on the third quarter.
AI Security Innovations Broaden the Opportunity
Recent announcements on Fortinet’s website underscore its push into AI security. On Oct. 26, the company launched the FortiGuard Inline AI Security Service, a cloud-delivered offering that brings AI-specific inspection and guardrails to existing FortiGate firewalls. On Nov. 5, Fortinet made FortiAIGate available on the Equinix Distributed AI Hub, offering low-latency guardrails for large language model (LLM) and Model Context Protocol traffic, per-token LLM cost tracking, visibility into shadow AI usage and NVIDIA GPU-accelerated inspection. Fortinet also introduced FortiLink SASE to secure small branches lacking a dedicated on-site firewall, integrated FortiAIGate with Oracle’s OCI Enterprise AI, was named a top OpenShell Reference Architecture Partner by NVIDIA and joined Microsoft’s Sovereign Partner Ecosystem. These initiatives should help monetize its large FortiGate installed base.
Raised 2026 Guidance Comes With Margin Caveats
For 2026, Fortinet expects revenues of $8.125-$8.215 billion, up from $8.02-$8.18 billion, implying 20% growth at the midpoint. Billings are projected at $9.568-$9.718 billion, while service revenue guidance was lowered to $5.150-$5.170 billion from $5.18-$5.22 billion. Non-GAAP gross margin is guided at 79.7-80.3%, operating margin at 36.5-37.5% and earnings at $3.54-$3.58 per share. For the fourth quarter, revenues are expected to be in the range of $2.155-$2.245 billion, billings at $2.775-$2.925 billion and earnings at 93-95 cents per share. However, the fourth-quarter non-GAAP operating margin guidance of 35.5-37.5% sits below the third-quarter level, while the gross margin is projected at 78-80% given the continued high contribution of product revenue.
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%.
Capital spending is set to rise. Fortinet expects infrastructure investments of $180-$210 million in the fourth quarter and $390-$420 million for 2026 compared with purchases of property and equipment of $212.8 million in the first nine months. Third-quarter free cash flow jumped 52% to $864.8 million, a 41.6% margin, and cash and short-term investments reached $4.80 billion. The board also raised the repurchase authorization by $1.2 billion, leaving $2 billion available for buybacks.
Premium Valuation Amid Intensifying Competition
From a valuation standpoint, FTNT appears overvalued, trading at a forward 12-month price-to-earnings ratio of 31.95, higher than the broader Zacks Computer and Technology sector’s average of 17.06. The company carries a Value Score of D. The premium faces intensifying competition from rivals.
Palo Alto Networks’ (PANW - Free Report) fiscal fourth-quarter revenues grew 34% to $3.41 billion, and Next-Generation Security ARR surged 63% to $9.10 billion. The company is extending Cortex through its Console acquisition. CrowdStrike (CRWD - Free Report) posted record net new ARR of $333 million in its fiscal second quarter. CrowdStrike’s total ARR rose 25% to $5.84 billion, and Falcon Flex ARR more than doubled to $2.29 billion. Check Point’s (CHKP - Free Report) third-quarter revenues dipped 1% to $670 million, although Check Point’s security subscription revenues rose 11%, and it expects gradual improvement beginning in the fourth quarter. Still, Fortinet’s 41.6% free cash flow margin and expanding AI security portfolio justify holding the stock despite its premium.
FTNT’s Valuation
Image Source: Zacks Investment Research
Conclusion
Fortinet’s raised outlook, AI security launches and robust cash generation support its story, but decelerating product growth, near-term margin pressure and a premium valuation limit upside. Fortinet currently carries a Zacks Rank #3 (Hold), suggesting investors hold the stock or wait for a better entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Fortinet Raises 2026 Outlook After Strong Q3: Time to Hold the Stock?
Key Takeaways
Fortinet (FTNT - Free Report) raised its 2026 outlook for the third time this year after third-quarter results exceeded the midpoint of guidance across billings, revenues, operating margin and earnings. Revenues rose 20% to $2.08 billion, billings jumped 29% to $2.34 billion, and product revenues surged 37% to $765 million. Non-GAAP earnings rose 23% to 91 cents per share, and non-GAAP operating margin reached 38.2%. However, decelerating product growth, a softer service revenue trajectory and near-term margin pressure suggest that investors are better off holding the stock or waiting for a more attractive entry point.
Fortinet shares have gained 61.9% in the year-to-date period, underperforming the Zacks Security industry’s growth of 69.5%. The underperformance largely reflects the sharp post-earnings sell-off, as investors focused on product revenue growth slowing from 52% in the second quarter and a muted service revenue outlook, rather than the headline beat.
FTNT’s Price Performance
Image Source: Zacks Investment Research
Platform Consolidation and OT Wins Sustain Demand
Fortinet’s growth remains anchored in its unified networking and security platform. SASE firewall billings grew 31% in the third quarter, while the total value of deals above $1 million grew 51%, highlighting enterprise appetite for vendor consolidation. Notable wins included an eight-figure competitive operational technology (OT) deal with a large transportation company and an eight-figure deal to standardize and secure 1,500 store locations for a large U.S. retailer. Fortinet was also named a Leader in the 2026 Gartner Magic Quadrant for Hybrid Mesh Firewall, ranking highest for Ability to Execute. Management continues to view the first quarter of 2026 as the trough for service revenue growth, though ramped service activations for large customers and expansion deals that consolidated existing service arrangements into enterprise agreements weighed on the third quarter.
AI Security Innovations Broaden the Opportunity
Recent announcements on Fortinet’s website underscore its push into AI security. On Oct. 26, the company launched the FortiGuard Inline AI Security Service, a cloud-delivered offering that brings AI-specific inspection and guardrails to existing FortiGate firewalls. On Nov. 5, Fortinet made FortiAIGate available on the Equinix Distributed AI Hub, offering low-latency guardrails for large language model (LLM) and Model Context Protocol traffic, per-token LLM cost tracking, visibility into shadow AI usage and NVIDIA GPU-accelerated inspection. Fortinet also introduced FortiLink SASE to secure small branches lacking a dedicated on-site firewall, integrated FortiAIGate with Oracle’s OCI Enterprise AI, was named a top OpenShell Reference Architecture Partner by NVIDIA and joined Microsoft’s Sovereign Partner Ecosystem. These initiatives should help monetize its large FortiGate installed base.
Raised 2026 Guidance Comes With Margin Caveats
For 2026, Fortinet expects revenues of $8.125-$8.215 billion, up from $8.02-$8.18 billion, implying 20% growth at the midpoint. Billings are projected at $9.568-$9.718 billion, while service revenue guidance was lowered to $5.150-$5.170 billion from $5.18-$5.22 billion. Non-GAAP gross margin is guided at 79.7-80.3%, operating margin at 36.5-37.5% and earnings at $3.54-$3.58 per share. For the fourth quarter, revenues are expected to be in the range of $2.155-$2.245 billion, billings at $2.775-$2.925 billion and earnings at 93-95 cents per share. However, the fourth-quarter non-GAAP operating margin guidance of 35.5-37.5% sits below the third-quarter level, while the gross margin is projected at 78-80% given the continued high contribution of product revenue.
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
Capital spending is set to rise. Fortinet expects infrastructure investments of $180-$210 million in the fourth quarter and $390-$420 million for 2026 compared with purchases of property and equipment of $212.8 million in the first nine months. Third-quarter free cash flow jumped 52% to $864.8 million, a 41.6% margin, and cash and short-term investments reached $4.80 billion. The board also raised the repurchase authorization by $1.2 billion, leaving $2 billion available for buybacks.
Premium Valuation Amid Intensifying Competition
From a valuation standpoint, FTNT appears overvalued, trading at a forward 12-month price-to-earnings ratio of 31.95, higher than the broader Zacks Computer and Technology sector’s average of 17.06. The company carries a Value Score of D. The premium faces intensifying competition from rivals.
Palo Alto Networks’ (PANW - Free Report) fiscal fourth-quarter revenues grew 34% to $3.41 billion, and Next-Generation Security ARR surged 63% to $9.10 billion. The company is extending Cortex through its Console acquisition. CrowdStrike (CRWD - Free Report) posted record net new ARR of $333 million in its fiscal second quarter. CrowdStrike’s total ARR rose 25% to $5.84 billion, and Falcon Flex ARR more than doubled to $2.29 billion. Check Point’s (CHKP - Free Report) third-quarter revenues dipped 1% to $670 million, although Check Point’s security subscription revenues rose 11%, and it expects gradual improvement beginning in the fourth quarter. Still, Fortinet’s 41.6% free cash flow margin and expanding AI security portfolio justify holding the stock despite its premium.
FTNT’s Valuation
Image Source: Zacks Investment Research
Conclusion
Fortinet’s raised outlook, AI security launches and robust cash generation support its story, but decelerating product growth, near-term margin pressure and a premium valuation limit upside. Fortinet currently carries a Zacks Rank #3 (Hold), suggesting investors hold the stock or wait for a better entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.