Goldman Sachs Sees 21% Downside in FireEye (FEYE) and Cuts Rating to 'Sell'
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(Updated - November 22, 2016 8:46 AM EST)
Goldman Sachs downgraded FireEye, Inc (NASDAQ: FEYE) from Neutral to Sell with a price target of $11 (prior $15), implying downside of 21%. Analyst Gabriela Borges thinks fundamentals will remain challenged through 2017.
"FireEye is in the midst of several significant product and business model transitions, which we believe creates medium-term risk to estimates and the stock. While a large part of this risk is already priced in (FEYE -33% YTD vs. S&P +8% and trading at 4.5X EV/recurring sales vs. peers at 5.3X), in our view, the Street continues to underestimate the challenges associated with transitioning from high-end hardware-based security products to a broader subscription/services portfolio in an environment where competition is high," said analyst Borges.
Discussing catalysts, the analyst said, "We recognize that FireEye is taking significant action with product positioning and cost optimization to improve its long-term growth prospects, led by new CEO Kevin Mandia and CFO Mike Berry. However, we expect fundamentals to remain pressured in 2017 owing to changes in customer buying patterns, and we believe that FireEye’s strategy to move into the mid-market will be difficult to execute (per our cost-effectiveness analysis and the evolving competitive environment). Even if FireEye is ultimately successful, it is unlikely to be a 2017 event: FireEye is in the process of releasing next-gen products, sales cycles typically take 6-9 months, and it may be difficult to intercept customer budgeting cycles mid-year. In the meantime, FireEye screens poorly on our returns framework, which may limit M&A upside risk."
Shares of FireEye, Inc closed at $13.87 yesterday.
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