Anticipated Undervalued Asset: A Stock Set to Surpass Palo Alto Networks' Value Within a Year
Palo Alto Networks (PANW) has been a standout choice for growth investors over the past five years, despite market turbulence from the pandemic, geopolitical conflicts, inflation, and rising interest rates. The cybersecurity giant saw its share price quadruple, driven by its cloud-based Prisma and AI-powered Cortex threat detection services. Despite experiencing a slower growth rate from 2024 to 2026, its revenue is projected to grow at a 15% CAGR, with adjusted EPS rising at a 13%.
While Fortinet (FTNT) might bear some resemblance to Palo Alto, there are distinguishing factors that set the two apart. Serving over 805,000 customers worldwide, Fortinet generates less annual revenue than its counterpart, but caters to a broader range of smaller customers. Its key differentiators include custom-developed application-specific integrated circuits (ASIC) which optimize its hardware and software, and a Security Fabric architecture that integrates multiple security products into a unified solution.
By 2026, Fortinet's market cap could potentially eclipse Palo Alto's, thanks to its lower valuation (37 times forward-adjusted earnings) and strong growth prospects. Analysts expect Fortinet's revenue to grow at a similar rate to Palo Alto's, with prospects of a minor near-term earnings slowdown due to investment in new hardware and services. Meanwhile, Palo Alto's valuation could be seen as overly optimistic, potentially impacting its investors if its platformization strategy fails to boost revenue.
Yet, Fortinet is not without its own challenges. It needs to prove its ability to secure larger contracts and allay investor concerns about near-term spending. If it succeeds, its higher potential valuation could materialize. Ultimately, while there's no guarantee that Fortinet will surpass Palo Alto by 2026, it presents an attractive option in the growing cybersecurity market, with its balanced and reasonably-valued propositions.
Insights from enrichment data:
- Fortinet's flagship product, FortiGate, provides comprehensive network security and firewall protection across various locations, offering features like VPN, intrusion prevention, and UTM controls. It also integrates seamlessly with SD-WAN and UTM policies, ensuring effective network security and advanced protection for diverse environments.
- FortiAI, Fortinet's threat-detection program employing AI, enhances its security capabilities by continually monitoring and analyzing traffic using machine learning algorithms. It helps Fortinet's security platform preemptively detect and neutralize threats.
- FortiEDR, a real-time endpoint protection solution, provides robust protection against advanced threats and ransomware. Its automated response capabilities, real-time detection, and thorough analysis of system activities ensure the quickest possible resolution to threats.
- Fortinet's Security Fabric architecture allows multiple network security products to communicate as a unified platform, providing seamless integration and a comprehensive security solution.
- Fortinet's centralized management simplifies operations across diverse environments, ensuring efficient deployment and configuration of its products. It allows users to manage and adjust their security policies and configurations across multiple locations with ease.
- Fortinet's portfolio includes robust and user-friendly solutions, making it a preferred choice for organizations seeking a simplified, cloud-based security solution. It has been ranked within the top three companies in Gartner's Magic Quadrant for enterprise network firewalls, indicating its strong market recognition and direction.
In terms of finance and investing, Fortinet's lower valuation compared to Palo Alto Networks could make it an attractive option for investors seeking return on their money. Additionally, Fortinet's strong growth prospects, driven by its advanced security solutions like FortiGate, FortiAI, and FortiEDR, could potentially lead to significant returns on investing in its stock.
