After Q3, Patience Is A Virtue For FireEye Investors

Despite a more than 10 percent sell-off in FireEye Inc FEYE's stock Thursday morning, Morgan Stanley analysts think the company's earnings report marks an "early turnaround" in its business. The firm's Melissa Franchi maintains an Overweight rating on FireEye's stock with an unchanged $19 price target.

FireEye's third-quarter earnings report showed a stabilization across many areas, an important step in the company's turnaround plans, Franchi said in a Thursday note. (See Franchi's track record here.)

Billings declined just 6 percent on a year-over-year basis, marking an improvement from a 12 percent decline last quarter, according to Morgan Stanley.

The company also saw improvements in new product adoption, including approximately 28 new paying Helix customers, up from 10 new additions in the prior quarters, Franchi said. It's stil early in the Helix life cycle and management continues to tweak the product, she said. 

FireEye's management team is showing excellent cost discipline, as operating expenditures were lower by 9 percent from a year ago, and operating margins rose 1,200 basis points, the analyst said. Looking forward to fiscal 2018, FireEye should see 13 percent billings growth (versus a 9 percent decline in fiscal 2018), which implies the company is "well-positioned" for the coming year and beyond, Franchi said. 

"Patience is a virtue" as FireEye's "product strategy is still gelling but easy comps, ramping renewals and low [expectations] on new product adoption keeps FEYE attractive thru CY18," Franchi said. 

Oppenheimer: 'Healthy' Results

FireEye's Q3 results were "decent," and the company has reaffirmed its commitment to reducing expenses, Oppenheimer's Shaul Eyal said in a Thursday note. 

Despite this, the company's fourth quarter billings guidance implies a 0.5 percent year-over-year decline due to shorter-than-expected contract lengths, Eyal said. 

As a whole, FireEye is "executing well" with a renewed product portfolio, the analyst said. Certain product lines within the unattached subscription product line, including Cloud HX, Helix and iSIGHT, realized "robust" performance during the quarter, according to Oppenheimer. Of particular note, the company realized a record-breaking quarter for the endpoint product HX, and management added 57 new Helix customers for a total of 71.

While positive execution in certain product segments is a positive, predictability for the company as a whole "remains a slight challenge" moving forward, Eyal said. 

Eyal maintains an Outperform rating on FireEye's stock with an unchanged $22 price target.

Related Links:

FireEye's Turnaround Is Clearly Underway After Q2 Beat

The Bull Case For FireEye Presents Potential For 100% Upside From Here