Fortinet Warning Weighs On Cybersecurity Peers, Aside From Barracuda

While Barracuda Networks (CUDA) announced last night better than expected second quarter revenue and earnings per share, Fortinet (FTNT) reported lower than expected preliminary third quarter results, sending their shares in opposite directions. Barracuda's results are buoying its shares, but the weight of Fortinet's warning is proving too much for several peers to shake off, at least in early trading.

RESULTS: Last night, Barracuda reported second quarter adjusted earnings per share of 21c and second quarter revenue of $87.9M, above consensus forecasts of 13c and $85.27M, respectively. Additionally, the company said second quarter subscription revenue grew 19% to $66.9M, representing 76% of total revenue. Barracuda's gross billings were $100.3M, compared with $98.4M in the second quarter of fiscal 2016. Also yesterday after market close, Fortinet reported preliminary third quarter earnings per share of 15c-16c and revenue between $311M-$316M, below consensus of 18c and $322.44M, respectively.

PIPER UPS BARRACUDA: Following "another strong quarter," Piper Jaffray analyst Andrew Nowinski upgraded Barracuda to Overweight from Neutral, saying he believes the company's transition to a subscription-based cloud portfolio is nearly complete and that he expects Barracuda's billings growth to accelerate in the second half of 2017 and beyond. Stifel analyst Gur Talpaz was also upbeat on Barracuda after quarterly results, raising his price target on the shares to $32 from $26. In a note of his own, the analyst said that he believes the growth opportunity for Barracuda's email security and public cloud solutions to be large, and reiterated a Buy rating on the stock.

FORTINET CUT AT STEPHENS: Stephens analyst Jonathan Ruykhaver downgraded Fortinet this morning to Equal Weight from Overweight after the company's "disappointing" preliminary results. The analyst believes that in addition to slower overall growth in the network security market, heightened competition is impacting sales growth. Meanwhile, Goldman analyst Gabriela Borges removed Fortinet from the firm's Conviction List, saying she underestimated the risks associated with the company's sales force reorganization and a slowdown in the firewall market persisting into the second half of 2016. However, the analyst maintained her Buy rating as she continues to believe Fortinet is well positioned to gain share and outgrow peers. Nonetheless, Borges expects network security stocks to remain under pressure in the near term, and noted that she is incrementally negative on Check Point's (CHKP) fundamentals.

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