Multiple Compression, Slower-Than-Expected Sales Growth At FireEye Weighing Ahead Of Q4

• The share price of FireEye Inc FEYE has declined 69.07 percent over the past six months, to a low of $15.23 on January 19.
• Wunderlich’s Rob Breza has maintained a Buy rating on the company, while lowering the price target from $32 to $21.
• The price target has been reduced due to multiple compression, as well as slower than anticipated revenue growth rate.

Analyst Rob Breza expects “less intrayear recognized revenue due to slower incident response revenue as well as lower product revenues” for the company.

Security breaches are expected to persist “at an alarming rate,” although the accelerated response rate of large enterprises is expected to slow after the considerable investments made in FY15. This is likely to lead to FireEye taking a more cautious approach with regard to its guidance.

Industry checks with partners and resellers suggest that there could be upside potential to the revenue and EPS for 4Q, driven by robust maintenance renewals and product revenues.

The checks also suggest continued strong demand within the retail and financial verticals, with customers wanting to re-enforce security environments.

“We believe FEYE remains the dominate solutions provider, despite competitive rhetoric as the pricing environment remained unchained,” Breza stated.

FireEye report weak results for 3Q, with billings and revenues below the consensus. Management attributed the poor results on a combination of shortening contract lengths in the U.S., weakness in Europe and decline in the average size of the over $1 million deals.

The company has guided to billings and revenue for 4Q below consensus, with better than consensus EPS.

The FY16 revenue and EPS estimates have been lowered from $821.6 million to $789.3 million and from ($1.17) to ($1.21).