{"id":45807,"date":"2023-08-08T06:35:03","date_gmt":"2023-08-08T10:35:03","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/why-fortinets-record-selloff-was-overdone-and-cloudflares-stock-got-way-ahead-of-itself\/"},"modified":"2023-08-08T06:35:05","modified_gmt":"2023-08-08T10:35:05","slug":"why-fortinets-record-selloff-was-overdone-and-cloudflares-stock-got-way-ahead-of-itself","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=45807","title":{"rendered":"Why Fortinet\u2019s record selloff was overdone and Cloudflare\u2019s stock got \u2018way ahead of itself\u2019"},"content":{"rendered":"
\n

Cybersecurity stocks underperformed the broader market Monday as analysts continued to update outlooks of the volatile sector, resulting in one firm\u2019s simultaneous upgrade of Fortinet Inc. and downgrade of Cloudflare Inc.<\/p>\n

Cloudflare
\n NET,
\n -2.49%<\/bg-quote>
\n shares, which fell as much as 6.5% Monday, closed down 2.5% at $67.79, weighed on the ETFMG Prime Cyber Security exchange-traded fund
\n HACK,<\/span>
\n which closed up 0.6%, while the S&P 500
\n SPX
\n rose 0.9%. Meanwhile, Fortinet\u2019s
\n FTNT,
\n +1.64%<\/bg-quote>
\n shares finished up 1.7% at $57.70.<\/p>\n

\n

On Friday, Fortinet shares turned in their worst one-day performance ever, dropping 25%, after the company reported that an \u201cunusually large volume of deals\u201d got pushed out of the latest quarter, while executives talked up macroeconomic challenges. Of note, the same thing happened to Cloudflare last earnings season, when it said deals were taking longer to close. <\/p>\n

Read:<\/strong> Fortinet\u2019s stock sent to the \u2018penalty box,\u2019 while Cloudflare appears to have exited it<\/p>\n

In a note titled \u201cAll that Glitters Isn\u2019t Growth,\u201d Guggenheim analyst John DiFucci downgraded Cloudflare to sell from neutral and set a $50 price target, because even though he views the company as \u201cwhat true Cloud should have always been,\u201d he said the stock \u201chas gotten way ahead of itself.\u201d<\/p>\n

\u201cWe believe the modest [second-quarter] beat will not likely carry over to the second half, where a steep hill of new [annual recurring revenue] needs to be climbed just to meet expectations (informed by guidance) \u2014 unless of course the macro backdrop (described as a \u2018grind\u2019 by management) significantly improves,\u201d DiFucci said.<\/p>\n

Annual recurring revenue, or ARR, is a software-as-a-service metric that shows how much revenue the company can expect based on subscriptions.\u00a0<\/p>\n

Cloudflare recently reported slightly better-than-expected results and guidance, while Chief Executive Matthew Prince played up the company\u2019s AI inferencing strengths. <\/p>\n

Read:<\/strong> Cloudflare earnings, outlook top Wall Street estimates, and stock rallies more than 8%<\/p>\n

Then, in a Guggenheim note titled \u201cTaking Advantage of the Digestion Period,\u201d analyst Raymond McDonough, who covers Fortinet, upgraded that stock to a buy and set a $70 price target. Fortinet\u2019s shares hit a record closing high of $80.28 in mid-July. <\/p>\n

\u201cWhile we recognize Fortinet faces several headwinds heading into the second half of the year, we do not believe the company is structurally impaired, nor do we believe its competitive positioning has deteriorated,\u201d McDonough wrote.<\/p>\n

\u201cOn the contrary, when we first launched coverage of the company in January, we underscored our views that Fortinet is a high-quality technology company with a sustainable moat \u2014 and those views have not changed,\u201d he added.<\/p>\n

Read:<\/strong> Fortinet leads cybersecurity stocks sharply lower after warning of deal delays<\/p>\n

McDonough said the company\u2019s initial high forecast \u201chas now been reset,\u201d and with the recent drop in price, risks to the current outlook have \u201cat least partially been priced in.\u201d The analyst expects growth at Fortinet to re-accelerate into 2024.<\/p>\n

Cloudflare\u2019s stock is up 50% year to date, while Fortinet\u2019s stock is up 18%, compared with a 15.9% advance of the HACK index, and a 17.7% gain on the S&P 500.<\/p>\n

Also on Monday, shares of Palo Alto Networks Inc.
\n PANW,
\n -1.41%<\/bg-quote>
\n declined 2%, adding to a 8.1% drop Friday, after analysts at Wedbush removed Palo Alto Networks from their Best Ideas List, which includes such stocks as Apple Inc.
\n AAPL,
\n -1.73%<\/bg-quote>,<\/span>
\n Microsoft Corp.
\n MSFT,
\n +0.71%<\/bg-quote>
\n and Tesla Inc.
\n TSLA,
\n -0.95%<\/bg-quote>.<\/span>
\n Palo Alto Networks shares are up 54.3% on the year.<\/p>\n

\u201cWe believe near-term upside is limited given some of the fears around growth in the cyber security sector, which is an overhang on the name,\u201d Wedbush said in a note, and maintained its outperform rating on Palo Alto Networks.<\/p>\n

Read: <\/strong> Microsoft cybersecurity expansion poses long-term ramifications for Palo Alto Networks, Cloudflare, others<\/p>\n

In July, Microsoft gained momentum after the company expanded its cybersecurity offerings, putting pressure on pure-play cybersecurity vendors like Palo Alto Networks and Zscaler Inc.
\n ZS,
\n -0.56%<\/bg-quote>.<\/span>\n <\/p>\n

Meanwhile, shares of Palantir Technologies Inc.
\n PLTR,
\n -1.15%<\/bg-quote>,<\/span>
\n which closed down 1.2% at $17.99, rose 2.5% after hours following in-line earnings and an announced $1 billion buyback program. At Monday\u2019s close, Palantir\u2019s stood at a 180% gain year to date, but shares are down 9.3% on the month. <\/p>\n

Read more: <\/strong>Palantir announces $1 billion buyback program, stock rises after earnings<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Cybersecurity stocks underperformed the broader market Monday as analysts continued to update outlooks of the volatile sector, resulting in one firm\u2019s simultaneous upgrade of Fortinet Inc. and downgrade of Cloudflare Inc. Cloudflare NET, -2.49% shares, which fell as much as 6.5% Monday, closed down 2.5% at $67.79, weighed on the ETFMG Prime Cyber Security exchange-traded […]<\/p>\n","protected":false},"author":1,"featured_media":45808,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-45807","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nWhy Fortinet\u2019s record selloff was overdone and Cloudflare\u2019s stock got \u2018way ahead of itself\u2019 | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Cybersecurity stocks underperformed the broader market Monday as analysts continued to update outlooks of the volatile sector, resulting in one firm\u2019s\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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