Internet security breaches continue to cause mayhem. JPMorgan Chase (JPM) is just one of the most recent to announce that they were attacked, with more than 76 million households and 7 million small businesses affected.
Given the scale and frequency of these attacks, companies are scrambling to protect their data, and federal and state authorities’ efforts are accelerating to force banks and brokerage firms to tighten their security defenses.
As we talked about back in April, cyber security is a sector I’ve been following for a while. There will be multiple opportunities for some time in this critically important area, which is becoming even more important with the advent of mobile payment services. The potential damage hackers can do is enormous, both in direct costs as well as the impact on people’s confidence in using the Internet for sensitive data like financial information.
One of the stocks I talked about was Fortinet (FTNT), and I still like it today in the wake of just-reported strong earnings. FTNT specializes in network security. It focuses specifically on unified threat management, which means the typical firewall has evolved into an all-in-one product that detects and prevents intrusions. Fortinet offers a number of application control and firewall software offerings, but its flagship device is FortiGate, a network security platform that can work for anyone from small offices and retailers to large enterprises and data centers.
Third-quarter revenues jumped 25% to 193.1 million — well above expectations of $185 million. Adjusted earnings of 12 cents per share were flat from a year ago, but still a penny better than anticipated. In addition, future growth prospects look solid with billings up 29% and deferred revenue rising 25%.
There were also several key takeaways from the conference call. For one, a Fortinet survey found that 90% of Chief Technology Officers were more uncertain about their abilities to keep IT infrastructure secure and were feeling pressure from their boards to make sure their systems were safe. This reinforces what we already know, which is that demand for security spending should remain high.
Second, management believes they are still early in their current product life cycle, which should help secure strong results for the next several quarters. In fact, FTNT is beating giants like Palo Alto Networks (PANW) with its current product line.
And lastly, FTNT has yet to feel the full positive impact of their sales force additions. When they do, I expect we’ll see even better earnings and a correspondingly positive reaction in FTNT stock price.
Fortinet remains in good position to benefit from the need for better cyber security. The need remains critical and the trend remains strong as corporations spend on security even while other areas of IT have been slowing. I expect FTNT to continue moving higher on renewed momentum and solid demand for its products.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10 and High Octane Trader.
