FIreye recently slipped to a Zacks Rank #5 (Strong Sell) and I am making it the Bear of the Day today. I am not doing that because I believe this is a bad stock, I am doing it to show how the Zacks Rank works. Too often I select stocks that are out of the public eye, names that are under the radar… but FEYE is not a name like that. So let’s take a look at what all this means and if there are any insights that can be learned from this article.
Description
FireEye, Inc. provides cybersecurity solutions to prepare for, prevent, investigate, respond to, and remediate cyber-attacks in organizations. The company provides network, email, endpoint, and cloud security solutions, as well as customer support and maintenance services. It also offers Helix Security Platform, a cloud-hosted security platform; Security Validation Platform against cyber attacks; Dynamic Threat Intelligence cloud, a bi-directional cloud-based service; and Mandiant Threat Intelligence that offers subscriptions to threat intelligence reports to organizations for defending cyber threats. FireEye, Inc. was founded in 2004 and is headquartered in Milpitas, California.
Earnings History
Any time I look at a stock I start with the earnings history. The basic question is whether or not management can guide Wall Street to an appropriate level. Management needs to set high expectations, but not too high that cannot be achieved. That is a skill set all on its own, but recall that disappointing the Street can have disastrous consequences.
I check the detailed estimates page of the Zacks website (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) to check the Surprise History.
For FEYE, I see a great history of beating the number. Four of the last four quarters have the company topping the Zacks Consensus Estimate. The Zacks Consensus Estimate is the average of all the analysts estimates that are either submitted to Zacks from other brokerages or independent research boutiques.
What I like to see here is that the beats are generally of good size. There was one monster beat three quarters ago when the company posted a gain of 9 cents when the estimate was calling for a loss of 2 cents, so that 550% positive surprise does skew the average.
The Zacks Rank does look at the earnings history, but it really focuses much more on the revision of earnings estimates.
Earnings Estimate Revisions
After looking at the estimate revisions, I scroll higher on the “Detailed Estimates” page (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) and look at the Magnitude – Consensus Estimate Trend section. That shows me how estimates for the current quarter, next quarter, current year and next year estimates have changed over a period of 90 days, 60 days, 30, days and one week ago.
For FEYE I see the current quarter and next quarter holding still over the last 90 days.
The full year numbers do see a little shuffling around. The current year saw a 2 cent increase from $0.34 to $0.36 over the last 30 days. That is something we want to see and should help the Zacks Rank.
Next fiscal year has seen estimates fall. Not by much, but really there were two revisions lower. The estimate for 2022 stood at $0.43 30 days ago, then slipped to $0.42 a week ago and is now $0.41. Those are small moves lower, but still they are lower and most stocks are seeing earnings estimates move higher.
LIke what you are seeing so far? Follow Brian Bolan and get an emailed link anytime he publishes a new article (https://www.zacks.com/bio/brian-bolan).
Valuation
Valuation is purely subjective and does not impact the Zacks Rank. That said I always take a quick look at things like the forward PE which is at 59x for FEYE. That is a little high – in that nifty fifty style range – and reasonable if there is good growth. Thing is I see only 5% topline growth in the most recent quarter (on an annual basis) and estimates are calling for only 7.5% topline growth in 2021. The price to book of 7.3x is pretty good for an asset slim business like this sot that is ok with me. I also believe the 5x price to sales multiple is in a reasonable range.
Margins are where I get a little worried. I see 64% gross margins and for a name like this I would want that number to be much closer to 80%. Operation and net margins are negative and that is not something that excites me.
All in all, FEYE needs to show more growth and improve its execution to drive higher earnings. That will really justify the high forward earnings multiple and probably attract more investors to its stock.
Chart
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Bear Of The Day: FireEye (FEYE)
FIreye recently slipped to a Zacks Rank #5 (Strong Sell) and I am making it the Bear of the Day today. I am not doing that because I believe this is a bad stock, I am doing it to show how the Zacks Rank works. Too often I select stocks that are out of the public eye, names that are under the radar… but FEYE is not a name like that. So let’s take a look at what all this means and if there are any insights that can be learned from this article.
Description
FireEye, Inc. provides cybersecurity solutions to prepare for, prevent, investigate, respond to, and remediate cyber-attacks in organizations. The company provides network, email, endpoint, and cloud security solutions, as well as customer support and maintenance services. It also offers Helix Security Platform, a cloud-hosted security platform; Security Validation Platform against cyber attacks; Dynamic Threat Intelligence cloud, a bi-directional cloud-based service; and Mandiant Threat Intelligence that offers subscriptions to threat intelligence reports to organizations for defending cyber threats. FireEye, Inc. was founded in 2004 and is headquartered in Milpitas, California.
Earnings History
Any time I look at a stock I start with the earnings history. The basic question is whether or not management can guide Wall Street to an appropriate level. Management needs to set high expectations, but not too high that cannot be achieved. That is a skill set all on its own, but recall that disappointing the Street can have disastrous consequences.
I check the detailed estimates page of the Zacks website (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) to check the Surprise History.
For FEYE, I see a great history of beating the number. Four of the last four quarters have the company topping the Zacks Consensus Estimate. The Zacks Consensus Estimate is the average of all the analysts estimates that are either submitted to Zacks from other brokerages or independent research boutiques.
What I like to see here is that the beats are generally of good size. There was one monster beat three quarters ago when the company posted a gain of 9 cents when the estimate was calling for a loss of 2 cents, so that 550% positive surprise does skew the average.
The Zacks Rank does look at the earnings history, but it really focuses much more on the revision of earnings estimates.
Earnings Estimate Revisions
After looking at the estimate revisions, I scroll higher on the “Detailed Estimates” page (https://www.zacks.com/stock/quote/FEYE/detailed-estimates) and look at the Magnitude – Consensus Estimate Trend section. That shows me how estimates for the current quarter, next quarter, current year and next year estimates have changed over a period of 90 days, 60 days, 30, days and one week ago.
For FEYE I see the current quarter and next quarter holding still over the last 90 days.
The full year numbers do see a little shuffling around. The current year saw a 2 cent increase from $0.34 to $0.36 over the last 30 days. That is something we want to see and should help the Zacks Rank.
Next fiscal year has seen estimates fall. Not by much, but really there were two revisions lower. The estimate for 2022 stood at $0.43 30 days ago, then slipped to $0.42 a week ago and is now $0.41. Those are small moves lower, but still they are lower and most stocks are seeing earnings estimates move higher.
LIke what you are seeing so far? Follow Brian Bolan and get an emailed link anytime he publishes a new article (https://www.zacks.com/bio/brian-bolan).
Valuation
Valuation is purely subjective and does not impact the Zacks Rank. That said I always take a quick look at things like the forward PE which is at 59x for FEYE. That is a little high – in that nifty fifty style range – and reasonable if there is good growth. Thing is I see only 5% topline growth in the most recent quarter (on an annual basis) and estimates are calling for only 7.5% topline growth in 2021. The price to book of 7.3x is pretty good for an asset slim business like this sot that is ok with me. I also believe the 5x price to sales multiple is in a reasonable range.
Margins are where I get a little worried. I see 64% gross margins and for a name like this I would want that number to be much closer to 80%. Operation and net margins are negative and that is not something that excites me.
All in all, FEYE needs to show more growth and improve its execution to drive higher earnings. That will really justify the high forward earnings multiple and probably attract more investors to its stock.
Chart
FireEye, Inc. Price, Consensus and EPS Surprise
FireEye, Inc. price-consensus-eps-surprise-chart | FireEye, Inc. Quote
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>