FireEye Rips After Evercore Buy Initiation, Firm Sees 'FaaS' Upside

• Shares of FireEye Inc FEYE spiked higher by more than 4 percent Tuesday morning.
• Ken Talanian of Evercore ISI initiated coverage of FireEye with a Buy rating and $39 price target.
• Talanian noted the company is a cyber security leader and concerns over increased competition are overdone.

Shares of FireEye have lost more than 30 percent since the start of 2015 and trade meaningfully below its all-time high of more than $85 per share shortly after its 2013 IPO.

Despite the sharp selloff throughout 2015, Ken Talanian of Evercore ISI initiated coverage of FireEye with a Buy rating and $39 price target. According to the analyst, the company is a "leader" within the cybersecurity space and ongoing concerns related to heightened competition and management turnover are "overdone."

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Talanian said the cybersecurity threat environment has become "increasingly more hostile" and it is "more difficult to defend." This is where "FireEye-as-a-Service" enters into the picture as the company can command a high price for its software/hardware, in addition to its people.

"With ROI being difficult to determine and a small pool of qualified people, the option to offload the operational part of security attractive," Talanian argued.

Meanwhile, FireEye's Mandiant division has a core strength in forensics/incident response capabilities which is considered as the "go-to" service after a breach has been discovered. The analyst suggested that this "uniquely benefits" FireEye as its personnel are "intimately involved" in reviewing a customer's system during a forensic investigation. As such, the company gains information that benefits the company's threat intelligence feed and provides an opportunity to cross-sell additional FireEye products.

Finally, Talanian stated that FireEye's valuation is "attractive" as it trades at a multiple of 2.5x EV/CY17 revenue compared to the group average of 4.2x EC/CY17 revenue. The analyst argued that FireEye's valuation should "trade at least equal to the peer group" assuming it is able to generate comparable growth.