Is Mixed News Good Enough For FireEye?

Shares of FireEye Inc FEYE surged 13 percent as cost cuttings helped the company post a solid earnings beat. But, Wedbush remains on the sidelines on reduced outlook and is waiting for an inflection in revenue and billings growth to become constructive on the name.

The brokerage attributed the uptick in shares to the high short interest and negative price action for FireEye in October.

Q3 Print

FireEye reported better-than-expected third-quarter results. For the fourth quarter, the company expects and non-GAAP EPS of ($0.16)–($0.18) and revenue between $187 million and $193 million, billings between $230 million and $250 million.

However, FireEye cut its FY16 revenue and billing forecast. The company now projects revenue of $716 million–$722 million (previously $716 million–$728 million), and billings of $828 million–$848 million (previously $835 million–$855 million).

“We think this reduction stems from sales capacity losses in the wake of its 3Q restructuring and from an attempt to de-risk the goals,” analyst Steve Koenig wrote in a note.

For FY17, management expects product revenue to continue declining at the current rate of 35 percent year-over-year. That said, the company expects narrower loss of ($1.14)–($1.16) (previously -$1.28 to -$1.32).

Koenig anticipates fourth-quarter total revenue of $193 million and non-GAAP EPS of ($0.15). For FY16, the analyst expects total revenue of $722 million and non-GAAP EPS estimate at ($1.12).

Rating Justification

The analyst's Neutral rating is based on the company’s dependence on the declining NX product, and potential successful launch of new virtualized and hybrid/cloud MVX offerings.

The company is also trying to create lower-priced add-on offerings for existing customers and a much cheaper cloud/hybrid capability for new customers.

“However, we think FEYE is fairly late in entering the market with a low-cost, software-based capability,” Koenig added.

At the time of writing, shares of FireEye climbed 13.35 percent to $12.48. The analyst raised his target price modestly to $14 from $13 on higher cash flows.