Stocks

FireEye Inc Surges On iSIGHT Acquisition

FireEye isn’t scheduled to release its next earnings report until next month, but the company shared a very positive metric today, in addition to news that it plans to acquire cyber-security assessment firm iSIGHT. FireEye still isn’t expected to post a profit when it releases its fourth quarter results. Analysts are looking for losses of 37 cents per share and $186.88 million in revenue.

fireeye

Negative sentiment reaches “excessive proportions”

In a report dated Jan. 21, JPMorgan analyst Sterling Auty weighed in on the big announcements. He thinks investors have become far too negative on the malware protection firm. They had been expecting another miss on billings and looking for management to cut guidance significantly.

FireEye said fourth quarter billings should be between $256 million and $257 million, which was toward the high end of their previous guide of $240 million to $260 million. For revenue, management expects between $184 million and $185 million for the fourth quarter, which is toward the middle of the previous range of $182 million to $190 million, although it’s short of the consensus (given above). They also expect between $7 million and $9 million in operating cash flow.

Auty believes that the firm’s billings received a boost from the beginning of Europe’s recovery plus strong adoption of FireEye as a service through Hewlett-Packard and other partners.

FireEye’s 2016 billings guide looks solid

For the full year, the company expects to see its organic billings climb 20%. It also expects to see positive cash flow and margins to improve, which should enable it to use its cash in a number of ways, including the iSIGHT Partners acquisition. Going forward, FireEye does expect to cut back on investments like international expansion and moving its products toward its FireEye as a service platform.

Auty thinks this could enable the firm’s operating profit and free cash flow grow more quickly, which should help improve sentiment and boost its share price.

iSIGHT acquisition to improve differentiation

The analyst also weighed in on the iSIGHT Partners acquisition, which he said should help FireEye differentiate itself further in the area of security intelligence by bringing attacker-based intelligence capabilities. He added that these capabilities complement Mandiant, which was already available on its platform.

The analyst also said that iSIGHT’s services can be sold through FireEye’s partners and also resellers, which he believes will help the company fix some of the conflicts within its channels while expanding its addressable market because there aren’t many competitors in this particular area. He reiterated his $30 price target and Overweight rating on FireEye shares.

The stock was up 3.6% at $15.40 per share as of this writing after briefly touching $16.01 earlier this morning.