Will FireEye (FEYE) Continue To Draw Investor Attention?

A successful portfolio manager is well aware of the fact that adding well performing stocks at the right time is as important as dropping the unprofitable ones. Indicators of a stock’s bullish run include a rise in its share price and a continued uptrend in estimates.

One stock that has been in focus lately is FireEye, Inc. FEYE. Although the stock has declined 7.1% quarter to date, its performance compares favorably with the 9.4% decline in the Zacks categorized Internet-Software market.

Further, estimates for this Zacks Rank #2 (Buy) stock have witnessed an uptrend. In the past 60 days, current quarter estimates have narrowed from a loss of 57 cents per share to a loss of 49 cents per share, while fiscal 2016 estimates have narrowed from a loss of $2.80 per share to a loss of $2.49 per share.

The stock’s long-term earnings per share growth rate is 16.75%

What’s Going in FireEye’s Favor?

The company reported strong third-quarter 2016 results on Nov 3. Both the top and the bottom line not only came ahead of the Zacks Consensus Estimate but also recorded a solid year-over-year improvement.  Shares of FireEye have moved up over 24% since the company reported its quarterly earnings.

Although the cyber security solution provider posted an adjusted loss (excluding one-time items but including stock-based compensation) of 46 cents per share, it was significantly narrower than the Zacks Consensus Estimate of a loss of 68 cents as well as the year-ago quarter’s loss of 75 cents. The improved bottom-line performance on a year-over-year basis was mainly driven by solid top-line growth and cost optimization initiatives.

FireEye’s third-quarter revenues increased 12.6% year over year to $186.4 million. Moreover, quarterly revenues came ahead of the Zacks Consensus Estimate of $182 million as well as the company’s own guidance range of $180 million to $186 million (mid-point: $183 million).

The improvement was primarily driven by a large number of deal wins and customer additions during the quarter. New product launches were also one of the main reasons behind this tremendous growth. FireEye witnessed strong customer additions in the Asia Pacific and Middle East regions.

FireEye has revised its guidance for the full year. Although, it lowered its revenues and billings guidance, we are encouraged by its upbeat guidance for non-GAAP operating margin and earnings per share.

Non-GAAP operating margin is now projected to be -22% to -23% of revenues, which is better than its previous guidance range of -26% to -28%. Similarly, the company now expects loss to be narrower than its previous guidance. Non-GAAP net loss per share is expected between $1.14 and $1.16 (mid-point $1.15), compared with the earlier projection of $1.28 and $1.32 (mid-point $1.30).

Going ahead, despite persistent macro uncertainty, the company appears optimistic due to a healthy security market, strong product lineup, deal wins and investment plans, which should boost results in the long run.

Furthermore, FireEye’s strategy of growing through acquisitions is encouraging, the latest being the buyout of iSIGHT Partners during the first quarter. The deal has beefed up FireEye’s cyber security suite and enhanced its competitive dynamics.

FireEye has also taken over Invotas, a firm specializing in improving response times post a cyber-attack. Its product, Security Orchestrator, is designed to compile information from a range of security products and automate responses when an incident occurs.

Furthermore, concurrent with its third-quarter results, FireEye, on Nov 3 announced its new Cloud MVX and MVX Smart Grid offerings, a lower cost intelligent threat detection solution for large enterprises as well as mid-market businesses.

All these indicate FireEye’s efforts to move beyond the enterprise level and end-point protection products it had started off with. These factors are also likely to aid the company’s long-term results.

Risks Persist

However, an uncertain economic environment, competition from the likes of Palo Alto Networks Inc. PANW and Juniper Networks Inc. JNPR, and currency headwinds remain concerns.

Stock to Consider

A better-ranked stock in the broader technology sector is Cirrus Logic Inc. CRUS, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Cirrus Logic has a long-term earnings per share growth rate of 17.5%.

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