The Streets Likes FireEye, But 2016 Will Be A Pivotal Year

Despite making some recovery over the past month, shares of FireEye Inc FEYE are down 14 percent year-to-date. A number of Wall Street analysts expressed their views after the FireEye Analyst Day held in New York.

JMP Securities

JMP Securities’ Erik Suppiger maintained a Market Perform rating for the company, after management “outlined a product strategy that emphasizes a transition to security subscription services and updated the company’s financial outlook with an accelerated path to profitability.”

Analyst Erik Suppiger mentioned three key takeaways from the company’s Analyst Day:

1. Changes in the threat landscape are likely to continue to result in robust demand for advanced security technologies
2. FireEye is making significant changes to its product offering to improve its positioning for a migration to cloud computing
3. Management seemed to have a clear focus on profitability, with the operating margin guidance being raised for FY16 and comments on reaching profitability in the back half of 2017

“We view the shift in FireEye’s product strategy favorably as we believe the company’s move towards more software-centric solutions and cloud-based subscriptions, and away from expensive hardware-centric appliances, will enable it to expand its customer base,” Suppiger wrote.

The analyst added, however that the product transformation creates significant sales and product execution risk, and that despite FireEye’s improved financials, the company continues to be significantly less profitable than its peers.

Oppenheimer

Oppenheimer’s Shaul Eyal maintained an Outperform rating for FireEye, with a price target of $35. The analyst mentioned the key takeaways from the company’s analyst day as:

1. The company’s continued commitment to an accelerated path to profitability
2. No change in the spending landscape, with revenue, billing and CFFO metrics being reiterated
3. FireEye as a Service [FaaS] appears to be gaining momentum and generating a billing run rate of more than $100M, “becoming a growth driver as it appears to be providing the necessary solutions to many of the CISOs' most pressing issues,” Eyal wrote.
4. “The recent acquisitions of Invotas (automation/orchestration) and iSight (threat analytics) augment FEYE's expanding end-to-end platform,” the analyst added.

Piper Jaffray

Piper Jaffray’s Andrew J. Nowinski upgraded the rating for FireEye Inc FEYE from Neutral to Overweight, while raising the price target from $15 to $24. The analyst enumerated four reasons for the upgrade:

1. Expectation of FireEye successfully transitioning to an “As-a-Service” model
2. Optimism in the company’s ability to “effectively leverage the channel” to achieve international expansion, without a major increase in operating expenses.
3. FireEye’s product roadmap appeared to be robust, with new products for penetrating the SMB market as well as virtual products for targeting the public cloud.
4. These factors would come together to allow FireEye to reach profitability in the latter half of 2017.

JPMorgan

Following FireEye’s Analyst Day, JPMorgan analysts commented that there was increased clarity into the company’s path to profitability. The CFO provided details of the company’s path to achieving a 15-20 percent long-term operating model by 2020, which “we believe shows a prudent path,” the analyst said.

“On the technology front there is a lot more focus on embracing the FireEye-as-a-Service and we see the rollout of the true virtualized version of the NX product as allowing broad adoption of the solution across company size,” the JPMorgan report stated.

Wedbush

Wedbush’s Steve Koenig maintained a Neutral rating for FireEye, while raising the price target from $17 to $18, citing “a slightly improved margin trajectory.” The analyst believes the company has the “right strategy in pivoting towards providing a global threat management platform delivered as a service.”

Following the recent appreciation, FireEye’s shares now better reflect the company’s longer-term prospects, unless there is improved visibility into the company’s success in transitioning its products to hybrid and cloud deployments. “We think the company is likely to struggle against potent competition in core network and email deals in the near-term, at least until new products can begin to gain traction,” Koenig wrote.

Morgan Stanley

Morgan Stanley’s Melissa Gorham maintained an Equal-weight rating for FireEye, while raising the price target from $14 to $16. The analyst said that the growing adoption of FaaS, visible with the $100M annualized run rate, matches the evolving security needs, which would enable the company to add to its recurring revenue.

“However, delivering on this utopian security "platform" will likely require a tighter story and solid execution, particularly in light of decelerating growth and an outlook for lower opex spend,” analyst Melissa Gorham commented.

Gorham believes that while FireEye appears to be taking its portfolio “in the right direction,” the move would put the company in “more direct competition with Advanced Persistent Threat protection solutions attached to sticky firewall vendors.”