The entirety of this week has been devoted to exploring possibilities in the options of cybersecurity companies. On Monday, we looked at the options of Cisco Systems, on Tuesday, options of Symantec were in our sights, on Wednesday we examined the options of Check Point Software and we looked for entry points in the options of Palo Alto Networks yesterday.
Today, we will explore the possibilities in the options of Fortinet, Inc. (NASDAQ:FTNT). Fortinet with its market capitalization of $5.44B provides network security solutions. Fortinet provides integrated and protection against security threats for enterprises, service providers and governmental entities worldwide.
Its flagship Unified Threat Management (UTM) solution consists of its FortiGate physical and virtual appliance products that provide a range of security and networking functions, including firewall, virtual private networking (VPN), application control, antivirus, intrusion prevention, Web filtering, vulnerability management, antispam, wireless controller, and wide area network (WAN) acceleration.
Why We are Looking at Fortinet Today
Potential Acquisition Target
Fortinet is the smallest of all the cybersecurity stocks that we have examined this week. The company has performed impressively in the last one year as it reports excellent growth in its revenue. It might interest you to know that the company’s revenue in fiscal 2014 climbed to $770M to mark about 80% from the revenue of $433 that was reported in fiscal 2011. Hence, I am optimistic that Fortinet could turn out to be a major acquisition target judging by its impressive growth and relatively small size.
Impressive Stock Performance
Shares of Fortinet caught my eyes yesterday after the stock recorded a strong rally to touch a new 52-week high at $33.40. Interestingly, shares of Fortinet are trading up 0.58% to $33.17 per share around 12:36PM EST. Today’s trading price effectively marks a 65.51% premium to the stock’s 52-week low of $20.04 and it marks a 0.69% discount to the 52-week high of $33.40. Hence, it is obvious that the stock has a better chance of breaking out above the 52-week high than dropping lower near the 52-week low.
The chart above shows how shares of Fortinet have traded in the last one year. The stock has grown by an impressive 54.99% and its revenue has climbed by 18.81% in the last one year. The stock has an RSI of 66.40 (nearing “Overbought” levels); yet, the stock has only entered overbought levels twice in the last one year. More so, the stock trades above its 50 and 200-day moving averages of $30.41 and $26.14, which suggests that the bullish momentum is high on the stock.
Optimistic Financial Outlook
Another reason to be optimistic about the prospects of Fortinet going forward is the decent financials of the company. In the recently reported quarter (Q4 2014), Fortinet reported revenues of $224 million to market a 26.3% increase from the year-ago quarter and to beat the consensus estimate of $209 million. Interestingly, the company expects revenue to be delivered in a range of $206 – $211M in the current quarter. The mid-point of the range markets 20% year-over-year increase and it beats the consensus estimate of $197M.
In the bottom line, the company reported Q4 GAAP earnings of $0.04 per share to underperform earnings of $0.07 from the comparable period last year. The drop in earnings can be traced to an increase in operating expenses as the company devotes more funding to market strategies, research and development. Nonetheless, Fortinet expects earnings per share within $0.49 to $0.50, much higher than the Consensus Estimate of $0.33.
How to Trade FTNT Options
I am optimistic about the prospects of Fortinet going forward and you should buy call options in line with the coverage for this week. I recommend buying the FTNT Jun 2015 32.000 call (FTNT150619C00032000) at an asking price of $3.00.
— Daily Option Alerts