Morgan Stanley Gives Tactical Advice on Sourcefire

Morgan Stanley has published a tactical idea report on Sourcefire FIRE. In the report, Morgan Stanley wrote, "We believe the share price will rise in absolute terms over the next 60 days. This is because the stock has traded off recently, making short term valuation much more compelling. With federal at 25% of revs., FIRE traded off 20% in July on the back of rising investor concerns over federal spending. We believe these near-term concerns are overblown for 3 reasons; 1) the model has been largely derisked for federal -- with mgmt. guiding to a 10-15% decline in FY11 federal revs. and our ests. of federal product revs. looking for an ~30% and ~40% YoY decline in 2Q and 3Q respectively, 2) the Spring budget impasse has actually compressed federal spending into the last few mos. of the federal FYE, which could drive upside to 3Q ests. for FIRE, and 3) cybersecurity remains a high priority in the federal gov't and we believe spending will grow -- even in the current budget climate. At 3.2X EV/CY12, FIRE trades below the software group avg. at 4.5X. Earnings ATC on 8/3. We estimate that there is about a 70% to 80% or "very likely" probability for the scenario." Morgan Stanley rated Sourcefire an Underweight with no price target given this time around. Sourcefire closed Friday at $24.58.