FireEye (FEYE) had a rough end to 2015, falling sharply on disappointing third-quarter earnings results. Since then, the stock has failed to regain significant traction — until this week at least, when share prices briefly popped more than 10% yesterday morning before slipping with the broader market again.
Could this be a sign that FEYE is on its way to a full recovery?
While management blamed tougher industry conditions and poor sales execution for a third quarter in which revenues grew “only” 45%, I believe the real underlying concern was competition from Palo Alto Networks (PANW), which offers a greater variety of software products at cheaper prices.
Competition is always a risk factor, especially in the crowded space of cybersecurity. But I think the concerns swirling around the company are overdone, as FEYE’s products occupy their own niche in that they limit the number of false threat detections, which saves IT departments money in the long run by avoiding costly shutdowns.
Plus, the fact that FEYE only sells cybersecurity threat products makes it a potential takeover candidate for a larger software vendor that wants a major presence in this rapidly growing sector.
FEYE Stock a Perfect Takeover Target
In fact, FEYE’s 10% pop yesterday was due in part to news that my previous GameChangers winner, Check Point Software (CHKP) is in talks to acquire CyberArk (CYBR). With FEYE now trading more than 50% below its August-correction low, the company could become a natural takeover target sooner or later.
And then today, the rumor mill started churning again that upcoming conferences may have been canceled, which led investors to wonder whether a buyout was in the works. Cisco’s (CSCO) name was one thrown around as a company considering acquiring FEYE.
Any larger company willing to buy out FEYE would cut duplicative costs and earn a nice return on its investments, while also gaining access to FEYE’s useful technology. I wouldn’t be surprised if Cisco is interested, and I would also throw out Juniper Networks (JNPR), Intel (INTC), IBM (IBM), or Hewlett Packard (HPE) as other possibilities. And that’s just the first tier of names.
After additional pressure weighed on the stock due to tax-loss selling in December, FEYE kicked off the new year on a strong note. Broader market weakness has forced the stock to give back most of those gains, but I think we’ll see it begin to move higher again once the market stabilizes. Any reasonable fourth-quarter results (estimated to be released on Feb. 9) close to the revenue estimate of $187 million could be a strong catalyst for the shares, too.
Deal or no deal, FEYE has a chance to turn this week’s bounce into a more substantial rebound as buyers realize just how attractive this name is. The market still isn’t pricing in the 33% revenue growth currently forecast for the year or the additional future growth potential FEYE has to offer.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
