Fortinet is expanding its
reach in small and medium-size businesses (SMBs) through unified threat
management (UTM) services. On January 13, the company announced 12 new security
products under its connected UTM platform. These products address the security
concerns of retail stores, branch offices, and distributed enterprises. The
products include UTM security appliances, wireless access points, WAN
extenders, and Ethernet switches.
The SMBs can benefit in
several ways with the connected UTM. They connect and integrate Fortinet’s UTM
appliances with wireless access points, wireless WAN extender, and other
switching products as well as simplify complex networks. As such, the connected
UTM will enhance the enforcement of security policy, reduce costs associated
with security, and offer high network security. Apart from that, Fortinet has
introduced analytics capabilities into its Fortigate appliances to target
retail businesses in which customer data and behavior is important. Retail
analytics provide retailers with data-management solutions that help businesses
monitor and analyze customer data. This will help retailers understand and
influence customers, and in turn help the company attract retail companies to
its products.
With its connected UTM
platform, Fortinet will increase its scope in the fast-growing UTM market.
Moreover, the company will be able to further consolidate its position against
competitors such as Check Point (CHKP), which aggressively targeted SMBs last
year. Over the past year, it introduced two UTM appliances — Check Point 1100
and Check Point 600 — aimed at branch offices and small businesses. UTM is the
fastest growing segment in the security-appliance market and now comprises
around 40% of the total market. It has grown 29.2% in the third quarter of 2013
compared to 2012. Further, the market is expected to grow at a CAGR of 15% over
the next five years. Fortinet, with its dominance and increasing reach in the
market, should benefit from the growth of the UTM market.
Benefitting shareholders
Last month, Fortinet’s board
of directors approved a $200 million share repurchase program. This repurchase
program will be completed by December 31, 2014. The company for the first time
announced a share buyback, which indicates that management considers
shareholder value in line with the company’s growth. This makes the stock
attractive and instills confidence among investors after the company’s stock
had fallen by 9% in 2013.
Fortinet had $841 million
cash and investments on its balance sheet as of the third quarter of 2013,
indicating sufficient liquidity for its share-repurchase program. Under the
program, the company will be able to buy back around 5.6% of 168 million fully
diluted shares at the current price of approximately $21. The company provided
earnings guidance of $0.46 – $0.47 per share for fiscal-year 2013, and with the
company’s share buyback program, the company’s EPS will increase considerably
in 2014. It is encouraging for investors that management continues to have
confidence in its earnings power and free cash flows for the coming quarters.
Conclusion
In 2013, Fortinet shares
dropped by approximately 9%, compared to an overall market that rose more than
32%. The company’s lower-than-expected performance in the first quarter
combined with the sudden departure of the CFO, Ahmed Rubaie, were the primary
reasons for the stock’s under-performance. However, the company’s stock has
appreciated by more than 10% this year after the company named its new CFO,
Andrew Del Matto. The company should continue its good run through the
remainder of 2014. The increasing reach of the company in the fast-growing UTM
market will help it increase revenue. Apart from that, the company’s share
repurchase program will increase the value of the stock in 2014.
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