Fortinet, Inc.FTNTNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $129.39 per share(market-calibrated)

+55.6%

Upside to Fair Value

Current

$83.16

Pure Model

$133.43

Fair Value

$129.39

Bull Case

$178.60

Bear Case

$97.51

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

1.65%

Calibrated Growth

3.01%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $133.43.

What's Driving This Ratingfor FTNT

✓

CapEx already efficient

CapEx at 4.49% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 50.72% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

↑

Strong near-term revenue growth

Analyst consensus projects 11.76% revenue growth in Year 1, fading to 6.77% by Year 5 and 3.75% by Year 10. Revenue reaches $15.1B by Year 10 (vs $6.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $102.04/share (19.4x terminal FCF) while exit multiple gives $164.83/share (38.6x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 1.65% perpetual growth — 210bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 72.50% indicates efficient cash generation. FCF reaches $5.8B by Year 10 (38.40% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.05

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.21%

Cost of Debt

Pre-tax Cost of Debt1.89%

Tax Rate19.15%

After-tax Cost of Debt1.53%

Equity Weight (E/V)98.41%

Debt Weight (D/V)1.59%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (98.41% × 9.21%) + (1.59% × 1.53%)

= 9.09%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$7.6B	$9.2B	$11.9B	$13.3B	$15.1B
EBIT	$3.9B	$4.6B	$6.0B	$6.7B	$7.7B
Tax	$738M	$890M	$1.2B	$1.3B	$1.5B
NOPAT	$3.1B	$3.8B	$4.9B	$5.5B	$6.2B
+ Depreciation	$170M	$205M	$266M	$298M	$338M
- Capex	$341M	$411M	$532M	$597M	$678M
- Δ NWC	$80M	$77M	$75M	$70M	$55M
Free Cash Flow	$2.9B	$3.5B	$4.5B	$5.1B	$5.8B
Discount Factor	0.917	0.770	0.647	0.544	0.419
Present Value	$2.6B	$2.7B	$2.9B	$2.8B	$2.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.8B

Terminal Growth Rate3.75%

WACC9.09%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$112.8B

PV of Terminal Value$47.3B

Exit Multiple Method

Year 10 EBITDA$8.0B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$224.2B

PV of Terminal Value$93.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$27.1B

PV of Terminal Value$47.3B

Enterprise Value$74.3B

(-) Net Debt-$1.5B

Equity Value$75.8B

Shares Outstanding743M

Price per Share$102.04

Exit Multiple Method

PV of Projected FCFs$27.1B

PV of Terminal Value$93.9B

Enterprise Value$121.0B

(-) Net Debt-$1.5B

Equity Value$122.5B

Shares Outstanding743M

Price per Share$164.83

Pure Model Fair Value

$133.43

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
7.09%	$165.02	$171.34	$179.57	$190.68	$206.55
8.09%	$144.15	$147.90	$152.51	$158.33	$165.90
9.09%	$128.16	$130.57	$133.43	$136.89	$141.14
10.09%	$115.28	$116.92	$118.82	$121.04	$123.68
11.09%	$104.57	$105.73	$107.04	$108.55	$110.30

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$97.51

17.3% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.31

Base Case

$133.43

60.5% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.05

Bull Case

$178.60

114.8% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.89

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth11.76%

Year 3 Revenue Growth9.16%

Year 5 Revenue Growth6.77%

Year 7 Revenue Growth5.56%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin50.72%

Tax Rate19.15%

Historical Capex / Rev4.49%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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