What Led FireEye Stock to Receive an Upgrade?

FireEye stock upgraded to “overweight”

FireEye (FEYE) recently announced of lower-than-expected loss guidance that provided a respite to its investors who saw its stock losing considerable value in 2015 and 2016. After FireEye’s announcement, Andrew Nowinski, an analyst at Piper Jaffray, upgraded FireEye’s stock from “neutral” to “overweight.” Nowinski also raised FEYE’s stock target to $24 from the earlier $15. Shares are up by ~5% premarket to $18.74.

Steve Koenig of Wedbush Securities hiked FEYE’s target by $1 to $18. Gray Powell of Wells Fargo Securities also raised the valuation range of FireEye by $1 to $16–$17.
What Led FireEye Stock to Receive an Upgrade?

Factors that led to FEYE’s upgrade

Following are the key factors, highlighted by the above-mentioned analysts, that propelled them to upgrade the stock are:

  • Successful transition of FireEye toward “as-a-service” in the current cybersecurity scenario. Gartner estimates show the cybersecurity market to be worth $170 billion by 2020, growing at a CAGR (compound annual growth rate) of 9.8% during 2015–2020.
  • FireEye’s capability to expand without a considerable increase in operating expenses
  • FireEye’s strong product portfolio to cater to SMB (small and medium businesses) as well as cloud. According to Cisco (CSCO), cloud spending in SMB is expected to reach $16 billion in 2015, triggered by the increased usage of cloud and mobile computing. Cloud spending was $5 billion in 2010, as the chart above shows. Oracle (ORCL) and SAP (SAP), through their cloud offerings like Oracle Accelerate for Oracle Sales Cloud and SMB Solutions Group, respectively, have tried to tap this rapidly transforming space.

Due to the integration of factors as mentioned above, FireEye is likely to attain profitability by mid-2017

You might consider investing in the iShares Russell 1000 Growth ETF (IWF) to gain exposure to FireEye, which makes up 0.03% of SPY. Investors who would like application software exposure could also consider this ETF. Application software makes up ~12.6% of IWF.