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In a report published Friday, Barclays analyst Saket Kalia argued that the departure of
FireEye Inc's CFO may "mask an otherwise good quarter."
FireEye announced during its second quarter results on Thursday that its CFO, Mike Sheriden, will be
leaving the company as he has already accepted a new job at a private security firm.
Shares of FireEye were trading lower by nearly five percent during Friday's pre-trading session, despite the fact that the company reported a better than expected second quarter. The company said that it lost $0.41 per share in the quarter on revenue of $147.2 million. Analysts were projecting a loss of $0.48 per share on revenue of $143.12 million.
According to Kalia, investors are focusing on Sheriden's departure as it is "never good" to see a senior executive leave the company "because it could bring up the question of a smoking gun." The analyst also noted that Sheriden played a public role during the company's IPO and worked closely with the investment community. As such, the departure "will probably overshadow" the company's "solid quarter."
Commenting on FireEye's second quarter metrics, Kalia noted that its reported billings of $178 million exceeded his $168 million and marked a 57 percent year over year growth as deal sizes increased from more multi-product deals. The analyst also noted that the company "showed operating leverage coming in" at a loss of $0.44 in the quarter, exceeding the Street's $0.48 loss estimate, but matching his $0.44 estimate.
Kalia continued that while some investors are focusing on FireEye's product revenue slowing to 32 percent year over year growth, product billings is a "better indicator" which rose 37 percent off a tougher comparable. Finally, the company's cash flow of $39 million was a "surprise" and exceeded the analyst's negative $35 million estimate.
Bottom line, the analyst's valuation model stretches out to fiscal 2019 and is based on the company's long-term targets (including a free cash flow of $400 million). If the company achieves these metrics, a 30x multiple is justified and values the stock in the mid to high $50 range. As such, shares remain Equal Weight rated with an unchanged $56 price target.
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