FireEye Analysts Cautiously Optimistic On Verodin Acquisition: 'We Continue To Wait-And-See'

FireEye, Inc. FEYE’s $250-million acquisition of security vendor Verodin won praise Wednesday from sell-side analysts who said it should create upside to FireEye’s long-term strategic value.

While positive on the acquisition, there was also a “wait-and-see” approach from analysts, who left their ratings for the software company stock unchanged. 

The Analysts

Baird Equity Research analyst Jonathan Ruykhaver reiterated an Outperform rating on FireEye with a $23 price target. 

Morgan Stanley’s Melissa Franchi maintained an Equal-weight rating and $17 price target.

KeyBanc Capital Markets' Rob Owens maintained a Neutral rating. 

The Takeaways 

Morgan Stanley’s Franchi said the acquisition should bolster the momentum for FireEye’s Mandiant services division. How much it will add to billings remains to be seen.

“While positive on this deal and with some upside to our price target … we still see a somewhat balanced risk/reward for FEYE as we await further signs the company can achieve double digit organic billings growth plus margin improvement in FY20 and beyond,” Franchi said in a Wednesday note. 

KeyBanc sees several potential synergies with the purchase, particularly relative to Mandiant — as well as in FireEye’s efforts to find a route to monetization, Owens said in a Tuesday note. 

The acquisition led KeyBanc to increase estimates for FireEye's billings and revenue, with a bigger contribution from Verodin projected in the second half of this year and in 2020.

KeyBanc lowered its 2019 EPS estimates a bit somewhat to capture the cost of the acquisition and the new share count.

“Solid acquisition, but we continue to wait and see,” Owens said, noting that Verodin likely will contribute less than 5 percent of revenue in 2020.

Baird's Ruykhaver said in a Wednesday note that the firm views the Verodin acquisition as one that enhances strategic value in the long-term. 

“We believe management can accelerate growth into the double digits, thereby commanding a multiple more in line with higher growth peers.”

Price Action

FireEye shares were up 3.79 percent at $14.78 at the time of publication Wednesday. 

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