Fortinet, Inc.FTNTNASDAQ

Overview Intelligence Charts News Fundamentals DCF Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $72.21 per share(market-calibrated)

-11.6%

Upside to Fair Value

Current

$81.69

Pure Model

$70.94

Fair Value

$72.21

Bull Case

$94.33

Bear Case

$52.21

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

6.26%

Calibrated Growth

4.13%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $70.94.

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.

↑

Margin expansion modeled

Current EBIT margin is 27.02% — below the sector mature average of 30.62%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $4.1B (27.02% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 11.73% 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 $51.96/share (19.4x terminal FCF) while exit multiple gives $89.92/share (42.6x 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 higher long-term growth

To justify $81.69, the market implies 6.26% perpetual growth — 251bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 65.75% indicates efficient cash generation. FCF reaches $2.9B by Year 10 (19.24% 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)98.39%

Debt Weight (D/V)1.61%

WACC Calculation

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

WACC = (98.39% × 9.21%) + (1.61% × 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	$2.1B	$2.5B	$3.2B	$3.6B	$4.1B
Tax	$393M	$474M	$614M	$689M	$782M
NOPAT	$1.7B	$2.0B	$2.6B	$2.9B	$3.3B
+ Depreciation	$170M	$205M	$266M	$298M	$338M
- Capex	$341M	$411M	$532M	$597M	$678M
- Δ NWC	$80M	$77M	$75M	$70M	$55M
Free Cash Flow	$1.4B	$1.7B	$2.3B	$2.5B	$2.9B
Discount Factor	0.917	0.770	0.647	0.544	0.419
Present Value	$1.3B	$1.3B	$1.5B	$1.4B	$1.2B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.9B

Terminal Growth Rate3.75%

WACC9.09%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$56.5B

PV of Terminal Value$23.7B

Exit Multiple Method

Year 10 EBITDA$4.4B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$123.9B

PV of Terminal Value$51.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$13.4B

PV of Terminal Value$23.7B

Enterprise Value$37.1B

(-) Net Debt-$1.5B

Equity Value$38.6B

Shares Outstanding743M

Price per Share$51.96

Exit Multiple Method

PV of Projected FCFs$13.4B

PV of Terminal Value$51.9B

Enterprise Value$65.3B

(-) Net Debt-$1.5B

Equity Value$66.8B

Shares Outstanding743M

Price per Share$89.92

Pure Model Fair Value

$70.94

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%	$87.42	$90.59	$94.72	$100.30	$108.27
8.09%	$76.62	$78.50	$80.81	$83.73	$87.53
9.09%	$68.29	$69.50	$70.94	$72.67	$74.80
10.09%	$61.56	$62.38	$63.33	$64.45	$65.77
11.09%	$55.94	$56.52	$57.18	$57.94	$58.81

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

$52.21

-36.1% vs current

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

Base Case

$70.94

-13.2% vs current

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

Bull Case

$94.33

15.5% 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 Growth11.73%

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 Margin27.02%

Terminal EBIT Margin30.62%

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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