FireEye (NASDAQ: FEYE) Just Got Attractive Again

A 90% pop in the second half of December had all the trappings of a good end to the year for shares of FireEye (NASDAQ: FEYE), but unfortunately for investors in the cyber-security stock, they couldn’t hold onto it. Shares slipped in the final week of 2020 and have been trending down for much of this new year so far.

At one point last week, they found themselves down more than 20% from December’s multi year high, but in the grand scheme of things, this isn’t much to worry about. While they mightn’t have finished the year as strongly as they might have wanted, they still managed to tack on more than 200% from the lows of last March. And as we head into the second week of February, there’s talk that the bears are starting to run out of steam as recent updates suggest we could be on for a run to those multi year highs again.

Record Numbers

The most recent catalyst was the company’s Q4 earnings which were reported last week. GAAP EPS was in the red and marginally below expectations while topline revenue managed a beat, posting 5.5% growth while it was at it. While not quite in the realm of the numbers some of the tech heavyweights have been reporting, this was still a decent report overall for the $4 billion company as they set several new records for themselves.

Kevin Mandia, CEO, said with the report; “our record fourth quarter and 2020 results demonstrated that we are gaining momentum in our Platform, Cloud Subscription, Managed Services and Professional services categories. The combined revenue from these two categories accounted for 55% of total revenue in 2020 and increased 23% from the full year 2019”. These aren’t numbers to be sniffed at, and already we’ve seen Wall Street sit up and take notice.

Late last week Bank of America were out with an upgrade to FireEye shares, moving them from Neutral to a Buy rating. They also upped their price target to $27, suggesting upside of some 30% even from Friday’s closing price. In a note to clients, they said the company is “finally showing solid results” and 2021 is setting up to be a good year for them.

Strong Potential

Analyst Tal Liani echoed FireEye’s CEO when he wrote that "at a high level, new initiatives are growing faster than the declines in legacy, with the Platform, CloudSubscription and Managed Services segment up 20% YoY in 4Q and Professional Services up 15.4% YoY, together comprising 58% of 4Q revenues and 66% of billings. Revenues from legacy products stabilized at -8.3% YoY, which mostly reflects the migration of the same solutions from on-premise to Cloud."

The move away from on-premise products should be welcomed, even if it means that that particular revenue stream dries up. The recurring nature of subscriptions has been the biggest revenue driver in the world of tech and software in recent years and is the way most things are going. FireEye’s marginally soft guidance for full year EPS compared to the consensus could perhaps be explained by this transition.

When we consider the soft start to the year that FireEye has had, you can’t help but see the weakness as a buying opportunity. This is a company that’s just hit new records for its total revenue, annual recurring revenue, non-GAAP operating income, and operating cash flow. It’s also expecting to cross the $1 billion mark in revenue for the first time this year which will be another significant feather in their cap. We saw towards the end of last year how quickly shares can move if they get some momentum behind them and as we head into the second half of Q1 all the factors are there for that to happen again.