Fortinet's (FTNT) anticipated firewall refresh cycle is about 40% to 50% complete and no longer remains a near-term catalyst, Morgan Stanley said in a note on Thursday.

The discrepancy between Fortinet's previous analyst day forecast and the actual pace of firewall replacements raised concerns and once the company "cleaned up their estimates, there was a smaller opportunity than they had thought," the firm noted.

The company's free cash flow fell short of expectations, primarily due to $144 million in real estate investment, while subscriptions and services revenue growth also missed estimates due to slower conversion of billings and a less extensive upsell tied to the refresh, according to the note.

Morgan Stanley said that increased sales headcount, acquisition absorption, and foreign exchange headwinds contributed to the margin contraction, signaling rising costs that might weigh on future earnings.

The firm downgraded its rating to equal-weight from overweight and reduced the price target to $78 from $110.

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