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FireEye Inc Earns Price Target Cuts For Weak Guide

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FireEye shares plunged by more than 12% to as low as $14.72 following Thursday night’s revenue miss and weak guidance. The company managed to beat on earnings, but cost optimization drove that beat. Analysts from multiple firms responded quickly to FireEye’s extremely soft outlook by cutting their price targets for its stock.

FireEye takes a hit from changes in cyber-security

FireEye is a much-watched name in a hot market, but the landscape has been changing and continues to change. JPMorgan analyst Sterling Auty expects some parts of the cyber-security industry to continue changing as some segments see fading or changing demand. The industry also now includes a new segment, which is incident response.

Auty notes that FireEye had a difficult year last year and adds that it may be time for the company to change the focus of its own IR product, Mandiant, to make it more proactive. He explains that the nature of incidents is changing as smaller more frequent attacks are becoming more common than high-profile cyber-attacks.

FireEye downgraded by JPMorgan

The analyst adds that all of these changes are occurring as FireEye’s roadmap sits in a lull. Some important pieces of new tech are still not out, including the cloud MVX product, which many enterprises have been waiting for. He believes the company’s stock will remain in a holding pattern until the new products are out and/ or until it can demonstrate the ability to execute on its aim to replace sales leadership.

FireEye reported $196.4 million in billings, $176.4 million in revenue, and adjusted losses of 33 cents per share for the second quarter. Wall Street had been expecting $209.6 million in billings, $181.6 million in revenue, and adjusted losses of 39 cents per share. The cyber-security firm expects revenue for this year to be between $716 million and $728 million, compared to the previous consensus of $793.74 million. It projects losses of $1.32 to $1.28 per share. Further, FireEye cut its full-year billings outlook by 17% and revenue outlook by 9%.

As a result of all this, the JPMorgan analyst downgraded FireEye to Neutral and slashed his price target from $20 to $15 per share.

Will FireEye become a target for M&A?

Auty also notes that consolidation continues in the cyber-security industry with Imperva being the latest company to consider strategic options. As a result, he sees the possibility of share outperformance for FireEye if something materializes on the M&A front.

Goldman Sachs analyst Gabriela Borges also said in her post-earnings report that M&A support could set a floor for FireEye stock as it continues to face structural challenges. She believes the company’s “dramatic deceleration” is the result of weaker demand for network appliances and rising competition for sandbox technologies. Further, she sees vendors offering firewalls, email and endpoints as offering “good enough” solutions, which is a problem for FireEye because customers are consolidating vendors.

She does like the company’s long-term goal of transitioning to a services model and believes that adding third-party feed support will help it win customers. However, she wants to see its revenue stabilize and gain more visibility into pricing dynamics for the subscription model. She cut her price target from $18 to $16 per share and maintained her Neutral rating on the company.

Stifel Nicolaus analysts also cut their price target for FireEye from $32 to $24 per share. This latest rounds of price target cuts follows another round of cuts in May after the company’s last earnings report. Additionally, Wedbush moved to $13 from $16 per share and maintained its Neutral rating.

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