Wedbush Downgrades FireEye, Says New Checks Make Them More 'Cautious'

• FireEye Inc FEYE shares are down 10 percent year-to-date, declining steadily from a high of $54.23 on June 18.
• Wedbush’s Steve Koenig downgraded the rating on the company from Outperform to Neutral, while reducing the price target from $41 to $32.
• Although the demand environment continues to be strong, budget dynamics favor the company’s competitors, Koenig noted.

Wedbush’s note published on October 11 had indicated that FireEye was witnessing increased competition from Palo Alto Networks Inc PANW and Check Point Software Technologies Ltd. CHKP.

The Outperform rating had been maintained due to “market perception of FEYE product superiority, growing CxO awareness of the FEYE brand, and investor sentiment that had become quite cautious,” analyst Steve Koenig mentioned.

Koenig added, however, that the latest reseller checks had resulted in increased concern that stiffening competition with firewall vendors for ATP sold to the network buyer “is a potential game-changer for the company.”

“The majority of our contacts have missed their 3Q sales goals, blaming the disappointing activity on competition with lower cost products, with WildFire being the primary competitor,” the analyst added.

Koenig stated that conversations with industry sources had indicated that competition in the enterprise market is more complex than merely a matter of price versus product effectiveness.

Although ATP demand seemed to be climbing steeply, customers need to allocate new budget for these solutions, since these are mostly complementary to traditional products, rather than being a replacement for them.

Koenig added, however, that enterprises would be attracted to a low-cost add-on product that could significantly improve their security posture. “And once these add-on offerings are deployed, it could become harder for FEYE to dislodge the firewall incumbent.”