Sell-Side Analysts Laud FireEye's Transformation

Cybersecurity company FireEye Inc FEYE reported Tuesday after the close with forecast-beating third-quarter results and issued above-consensus guidance for the full year.

The Analysts

• UBS analyst Fatima Boolani maintained a Neutral on FireEye with a $17 price target.
• Barclays analyst Saket Kalia maintained an Equal Weight rating with a $20 price target.  
• KeyBanc Capital Markets analyst Rob Owens reiterated a Sector Weight rating.
• BTIG analyst Joel Fishbein reiterated a Buy rating and $21 price target.
• Bank of America Merrill Lynch analyst Tal Liani reiterated a Buy rating and $20 price target.

UBS: Valuation Reacceleration Elusive

FireEye's above-consensus 7-percent total revenue growth and 8-percent billings growth were a function of more episodic hardware/tech fees/on-premise activity, UBS' Boolani said in a Wednesday note. Cloud subscriber billings saw yet another deceleration in growth, the analyst said. 

UBS expressed skepticism about the durability of FireEye's positive operating profitability and cash flow. The firm left its estimates for FireEye largely unchanged, but said it's hard to argue for multiple expansion on the basis of its below-consenus calendar 2019 estimates.

FireEye shares have a balanced risk-reward profile, Boolani said.

Barclays Focuses On Billings Shift 

Increasing billings and contributions from new products are helping FireEye transform from its appliance-focus to a more software and services-focused model, Barclays' Kalia said in a Wednesday note. 

A 9-percent billings growth target for Q4 — adjusted for large deals — supports billings growth in the high single digits in 2019 and beyond, the analyst said. 

"Revenue will have some quirks with 606-related product amortization, but we think the changing composition of billings will be the focus going forward." 

See also: Cybersecurity Stocks Trade Lower After White House Eliminates Vacant Cyber Coordinator Position

KeyBanc: Shares Fairly Discounted At Current Levels

FireEye executed solidly in Q3, as it right-sized costs and returned the business to growth, KeyBanc's Owens said.

The analyst said the re-acceleration in non-services revenue and the 100 new Helix customers acquired in Q3 suggest progress in FireEye's attempt to move to a more subscription-centric story.

Shares are fairly discounted at current levels, according to KeyBanc, accounting for the firm's neutral stance on the stock. 

BTIG: Valuation Remains Compelling 

Cloud subscription and managed services revenues drove much of the upside in Q3, BTIG's Fishbein said.

The two segments will continue to be major growth drivers, the analyst said. 

New platform offerings are also contributing to FireEye's "impressive recovery journey," Fishbein said. The company's expectation of turning cash flow neutral by the end of the year is conservative, and achieving an operating margin of 19-22 percent in the long run looks achievable, he said. 

"To top it all off, the deeply depressed valuation ... remains very compelling relative to an expensive tech ticker tape.' 

BofA: We Favor Slow-But-Steady Turnaround 

FireEye's Q3 print marks the fifth consecutive quarter of the company beating or meeting Street estimates, BofA's Liani said. The analyst sees the outlook as conservative.

"We favor the consistency and slow but steady turnaround efforts." 

Among the positives BofA highlighted were stable renewal rates; the displacement of incumbents by new products in several areas of cybersecurity; and the positive valuation.

The Price Action

FireEye shares were trading up 10 percent at $18.54 at the time of publication Wednesday. 

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