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Why Fortinet (FTNT) and W&T (WTI) are Being Pounded Friday

Stocks in this article: WTI FTNT

NEW YORK (TheStreet) -- IT consulting firm Fortinet (FTNT) and oiler W&T Offshore (WTI) were pummeled on Friday as investors processed respective company announcements released after the bell Wednesday.

By midday, Fortinet had been slashed 12.4% to $17.20, while W&T was down 9.4% to $17.15.

For Fortinet, the announcement late Wednesday that its CFO is leaving the company sent shares spiraling. The Sunnyvale, Calif.-based business said CFO Ahmed Rubaie had resigned for personal reasons and that corporate controller Nancy Bush will serve as interim CFO until a replacement can be found. Rubaie had only been with the company since April.

Separately, W&T Offshore announced it is facing regulatory hurdles imposed by the Environmental Protection Agency. The Houston-based miner announced late Wednesday that it had received suspension notices from government regulators concerning its oil and gas leases in the Gulf of Mexico. The notices pertain to a minor oil leak in 2009 which breached the Clean Water Act.

"These regulatory actions are undeserved and do not reflect the degree of financial and operational responsibility and current record of compliance that the Company has demonstrated in its Gulf of Mexico operations," the company said in a statement.

"The suspension and proposed debarment is based upon five-year-old incidents on a single production platform out of more than 100 platforms and facilities that we operate in the Gulf of Mexico. Since then, with the input of the Government in settling those incidents, we have enhanced our environmental and safety compliance program which remains subject to close scrutiny," added CEO Tracy W. Krohn.

TheStreet Ratings team rates Fortinet Inc as a Hold with a ratings score of C. The team has this to say about its recommendation:

"We rate Fortinet Inc (FTNT) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FTNT's revenue growth has slightly outpaced the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 13.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • FTNT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, FTNT has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Fortinet Inc's earnings per share declined by 30% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Fortinet Inc increased its bottom line by earning 40 cents a share vs. 39 cents a share in the prior year. This year, the market expects an improvement in earnings (46 cents vs. 40 cents).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 35.9% when compared to the same quarter one year ago, falling from $17.21 million to $11.03 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Software industry and the overall market, Fortinet Inc's return on equity is below that of both the industry average and the S&P 500.

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