Recently I’ve been bullish on FireEye Inc (NASDAQ:FEYE). Yet my focus has been mostly on the long-term, since turnarounds can certainly be tough.
But as for this week, there are indications that the improvements may happen at a faster clip. As a result, FEYE stock has logged a gain of 16.6%.
Keep in mind that Wall Street analysts are getting more optimistic. For example, Goldman Sachs boosted the price target on FEYE stock to $15 and Bank of America raised it from $13.50 to $18. Assuming these are on the money, then the potential upside is anywhere from 22% to 46%.
OK, so why does FEYE stock look attractive now? Well, let’s take a look at three factors:
Reasons FEYE Stock Can Win: Strong Leadership
When it comes to tech companies, it is critical to have a CEO that has the right blend of technical and business savvy. And as for FEYE, the company’s leader, Kevin Mandia, seems to be a good fit for this criteria. He is one of the foremost authorities on cybersecurity, having co-written two books on the subject as well as serving in the United States Air Force as a security officer and then as a cybercrime investigator in the Air Force Office of Special Investigation.
He also founded a highly successful company, Mandiant, which was sold to FEYE in 2014.
Of course, when Mandia took the helm of FireEye in May, the company was in serious trouble. The main reason was that the company did not make the transition to the cloud.
But Mandia has wasted little time in dealing with this. In fact, he has launched some compelling products, such as Helix, Cloud MVX and the Smart Grid, that should be able to get FEYE back into the growth phase. According to the BAC analyst report:
“FireEye’s core value proposition is centered around having some of the most advanced threat intelligence that lends its value to three areas of innovation: dealing with network threats, strong position in endpoint protection and above all is the value of analytics and threat management.”
Reasons FEYE Stock Can Win: Secular Growth
Cybersecurity remains a high priority for CEOs across the world. Let’s face it, the threats continue to evolve, especially as new technologies emerge like the IoT (Internet of Things).
Something else: There continues to be increases in cyberattacks from criminal syndicates and nation states. A prime example is the Russian hack of Yahoo! Inc. (NASDAQ:YHOO).
So yes, the market opportunity is massive for cybersecurity software. According to IDC, the spending is expected to jump from $73.7 billion in 2016 to $101.6 billion by 2020. This translates to a compound annual rate of 8.3%, which is twice the rate of the overall IT market.
The report notes:
“The pace and threat of security attacks is increasing every year, especially across compliance-driven industries like healthcare, telecom, government and financial services. In addition to the traditional challenges of risk and regulatory compliance, digital transformation and the use of 3rd Platform technologies are putting even more pressure on organizations across all industries to develop and execute on a new generation of security measures.”
Reasons FEYE Stock Can Win: Valuation
Even with the recent bull move, FireEye stock still sports an attractive valuation. Consider that the price-to-sales ratio is at about 3X. By comparison, Palo Alto Networks Inc (NYSE:PANW) trades at 6.6X, Fortinet Inc (NASDAQ:FTNT) is at 5X and Cyberark Software Ltd (NASDAQ:CYBR) has a multiple of 7.8X.
Although, the ultimate end-game for FEYE is perhaps a buyout. The cybersecurity space has seen quite a bit of activity over the years from mega operators like Microsoft Corporation (NASDAQ:MSFT), Symantec Corporation (NASDAQ:SYMC), Cisco Systems, Inc. (NASDAQ:CSCO) and International Business Machines Corp. (NYSE:IBM).
Interestingly enough, the latest Goldman Sachs analyst report mentioned the potential for a buyout of FEYE stock, especially since the company has $1.3 billion in tax credits.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A Bundle. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
