What to Expect from Fortinet (FTNT) this Earnings Season?

Fortinet Inc. FTNT is set to report first-quarter 2015 results on Apr 20. Last quarter, the company posted a negative earnings surprise of 12.5%. It is worth noting that Fortinet has underperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average negative earnings surprise of 11.0%.

Factors to Consider

Fortinet provides network security solutions, which include firewall, VPN, application control, antivirus, intrusion prevention, web filtering, anti-spam and WAN acceleration. Despite the continuing macro uncertainty, the company seems positive on a healthy network security market, its product line-up, deal wins and investment plans which should boost results in the to-be-reported quarter.

However, continuous investments in research and development and competition from key network security players such as Cisco Systems, Check Point, Juniper Networks and Palo Alto Networks are the concerns. These factors could have a negative impact on the first-quarter margins.

Earnings Whispers

Our proven model does not conclusively show that Fortinet will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at break-even. Hence, the difference is 0.00%.

Zacks Rank: Fortinet’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Broadcom Corp. BRCM, with an Earnings ESP of +5.00% and a Zacks Rank #1 (Strong Buy).

Apple Inc. AAPL, with an Earnings ESP of +6.05% and a Zacks Rank #2 (Buy).

Amazon.com Inc. AMZN, with an Earnings ESP of +150.00% and a Zacks Rank #3.

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