DCF Studio

    FTNT · NMS · Technology

    Fortinet, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 47.55

    Market price

    USD 169.84

    Implied upside

    -72.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.5% of revenue against depreciation of 2.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 54.6x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 47.55-72.0%
    Exit multiple
    USD 81.06-52.3%
    Market price
    USD 169.84

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 7.9bnUSD 9.1bnUSD 10.5bnUSD 12.1bnUSD 14.0bn+15.5%
    EBITUSD 2.1bnUSD 2.4bnUSD 2.8bnUSD 3.2bnUSD 3.7bn+15.5%
    NOPATUSD 1.8bnUSD 2.1bnUSD 2.4bnUSD 2.8bnUSD 3.3bn+15.5%
    Add depreciation & amortisationUSD 172.6mUSD 199.3mUSD 230.2mUSD 265.7mUSD 306.8m+15.5%
    Less capital expenditureUSD -430.6mUSD -497.2mUSD -574.1mUSD -662.9mUSD -765.3m+15.5%
    Less increase in working capitalUSD 69.5mUSD 80.3mUSD 92.7mUSD 107.0mUSD 123.6m-15.5%
    Free cashflow to firmUSD 1.6bnUSD 1.9bnUSD 2.2bnUSD 2.5bnUSD 2.9bn+15.5%
    Discount factor0.95060.85900.77620.70140.6338-
    Present valueUSD 1.6bnUSD 1.6bnUSD 1.7bnUSD 1.8bnUSD 1.8bn+4.3%
    Present Value Of The ForecastUSD 8.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.040Reported 1.059, pulled toward 1.0 (Blume)
    Cost of equity10.72%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 124.6bn99.2% of capital
    Total debtUSD 996.3m0.8% of capital, book value as a proxy
    Tax rate12.3%Effective, capped at statutory
    WACC10.67%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 47.55

    75% of EV

    Forecast FCFF, final year
    USD 2.9bn
    Capex at depreciation, working capital in reinvestment
    USD 3.3bn
    Less reinvestment at g/ROIC (4.2% of NOPAT)
    USD -138.1m
    Capitalised
    USD 3.2bn
    ROIC (reported)
    60.0%
    Terminal value, undiscounted
    USD 39.9bn
    Terminal value, discounted
    USD 25.3bn
    Enterprise value
    USD 33.8bn
    Less net debt
    USD -2.6bn
    Equity value
    USD 36.4bn

    Exit at 20.0x EBITDA

    Value per shareUSD 81.06

    86% of EV

    Terminal value, undiscounted
    USD 80.3bn
    Terminal value, discounted
    USD 50.9bn
    Enterprise value
    USD 59.4bn
    Less net debt
    USD -2.6bn
    Equity value
    USD 62.0bn

    Spread between methods: 52%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.67%56.2359.1662.5666.5571.31
    9.67%49.4551.5854.0056.7860.01
    10.67%44.1745.7647.5549.5751.87
    11.67%39.9341.1642.5344.0445.74
    12.67%36.4737.4438.5039.6640.96

    Outlined: this model. Green text: above today's price of 169.84. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year15.5%53.2%+37.7pp
    Discount rate10.7%4.7%-5.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.