Looking for a beaten up stock? Look at FireEye – $FEYE

Posted By on April 27, 2017

Once a cloud-computing software security darling, FireEye has taken it on the chin and then some. Concerns still abound, but from most accounts, a bottom in stock price may have been found. It is particularly encouraging that Goldman’s Gabriela Borges, a software security analyst, has issued a “buy” recommendation and believes the stock will rally 18% over the next 6 months.

For me, this could be another 2017  “in and out” trade unless we see contracts renewed and more growth on the horizon.  Because the expectations are low and many investors have been hurt and likely afraid to get back into FireEye, it might take a “show me” moment to attract investors again? If you are a tech oriented investor with some risk-tolerance and want in before the “show me” moment, FireEye (FEYE) maybe a stock to buy. For me, I wouldn’t mind being out before the end of May if FEYE is up 7% or so … if not …no sweat considering it is currently priced close to a consensus bottom.

Comments

  • One of my better calls …

    UPDATE: FireEye beats on earnings and guidance, stock soars
    5/2/2017 4:51 PM ET (MarketWatch)

    One year after being named chief executive of FireEye Inc., Kevin Mandia feels he has the company pointed in the right direction.

    For once, investors seem to agree.

    FireEye (FEYE) revealed its third consecutive earnings beat with its first-quarter report Tuesday and provided full-year and second-quarter guidance that also exceeded analysts’ expectations. The security-software company’s beleaguered stock was halted in late trading after the report was released, then jumped more 13% when it resumed trading at 1:30 Pacific time.

    Mandia admitted in an interview Tuesday that attempting to push FireEye away from its legacy hardware-based business to a cloud-software mind-set has been difficult, and weighed on FireEye’s results and guidance.

    “How we do business was so deeply rooted in that appliance mind-set, and we have to continue to evolve,” Mandia said in a telephone interview ahead of the report’s release. “That was the biggest thing that I didn’t quite understand when taking the job, and we’ll keep changing that over time.”

    Mandia took over the CEO role from David DeWalt (http://www.marketwatch.com/story/david-dewalt-out-as-fireeye-ceo-kevin-mandia-to-take-over-2016-05-05) last year and almost immediately announced layoffs (http://www.marketwatch.com/story/fireeye-plans-layoffs-as-new-ceo-takes-the-helm-2016-08-04) and shook up FireEye’s sales team to prod the transition to cloud software. While the restructuring has helped the company shore up its bottom line, it also introduced a degree of uncertainty, as FireEye’s weak first-quarter forecast and failure to tell investors its expectations for the full year (http://www.marketwatch.com/story/fireeyes-year-of-transition-ends-with-an-earnings-beat-and-yet-more-change-2017-02-02) amid the departure of its chief financial officer sent its stock to then-record lows.

    Optimism is bubbling up, though, as FireEye got a bounce from a couple of positive analyst reports, including one from Goldman Sachs analyst Gabriela Borges (http://www.marketwatch.com/story/fireeyes-stock-rockets-after-goldman-swings-to-bullish-from-bearish-2017-03-23), who noted the shift in sales to a subscription-based model was happening faster than expected. She also mentioned FireEye’s newest product, Helix, a software platform unifying FireEye’s offerings that launched at the beginning of the current quarter and is a main reason for Mandia’s optimism.

    “We had to unify our product road map,” Mandia said. “When you look at this company, we were largely running eight or nine separate product orgs when I took the job and now we have a single unified product road map.”

    FireEye reported a net loss of $83 million, or 48 cents a share, on revenue of $173.7 million for the first fiscal quarter. After adjusting for stock-based compensation and other effects, FireEye claimed a loss of 9 cents a share. Analysts on average were expecting an adjusted loss of 26 cents a share on sales of $163.5 million, according to FactSet, a bar that was lowered substantially after FireEye’s weak quarterly guidance issued in February.

    The projection that took the biggest hit from February’s guidance was billings, an important software metric that represents contracts for future service. Analysts were modeling first-quarter billings of $186.9 million, but FireEye’s guidance of $130 million to $150 million brought analysts’ estimates down to $142.5 million. FireEye again easily cleared that mark, reporting $152.4 million.

    Mandia and new Chief Financial Officer Frank Verdecanna explained that the disappointing guidance and failure to issue a full-year forecast was because of a less gentle transition than expected, as product revenue spiked to a 50% drop in the fourth quarter before Helix was able to make up for that decline. With the unified software platform in place and new endpoint protection on track to launch this year, FireEye’s guidance is backloaded: The company expects billings of $155 million to $175 million in the second quarter, but $745 million to $775 million for the full year, which puts most of the onus on the second half of the year but easily beats Wall Street expectations of $734.5 million.

    “Both Helix and the next-generation endpoint will really be the growth drivers for the second half,” said Verdecanna, who took over as CFO from Michael Berry after he left for Intel Corp.’s Intel Security spinoff earlier this year. “We would expect to see continued traction in Helix in Q2, but the vast majority of the growth is going to be driven in the second half of the year.

    Verdecanna reiterated that FireEye expects the company to move to adjusted operating profitability in the fourth quarter of this year and be operating cash-flow positive for the full year, important milestones for FireEye as it continues to burn cash. He noted that FireEye beat its goal for cash burn in the just-completed quarter, reporting $17 million after guiding for $30 million to $40 million.

Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.