Fortinet heads into earnings with product growth in the spotlight

Fortinet Inc ( NASDAQ:FTNT ) is set to report its second quarter results on July 29, with Jefferies analysts highlighting that the company needs to show an acceleration in product revenue growth to support investor confidence in the durability of its recent performance.

The firm expects solid product trends in the quarter, driven by price increases and improving channel checks, but wrote that investors will be looking for evidence the momentum can extend beyond the near term.

Jefferies expects product revenue growth to strengthen from the first quarter as Fortinet benefits from a full quarter of higher pricing and what it described as improving demand trends.

The firm's proprietary survey showed performance versus plan improved sequentially, while channel checks pointed to healthy firewall demand despite some inventory constraints and longer appliance lead times.

The firm wrote that while product strength could continue for another quarter or two, it needs greater confidence that growth can be sustained into 2027 and that services billings, particularly subscriptions, will remain strong before becoming more constructive on the stock.

Billings will also be closely watched. Jefferies expects Fortinet to exceed its second-quarter billings guidance, which calls for 20% year-over-year growth at the midpoint, but does not expect management to significantly raise its full-year billings outlook given tougher comparisons in the second half of the year and longer lead times for appliances.

Margins are another focus. Jefferies expects Fortinet's midpoint guidance for a 34% non-GAAP operating margin to be achievable, supported by recent price increases and lower-cost inventory.