Rating Update: Stock Rating F-Lowest (9/27/19)-FireEye Inc (FEYE).

out_logo_500#71126.jpg

BUSINESS

FireEye, Inc. provides cybersecurity solutions that allow organizations to prepare for, prevent, respond to, and remediate cyber-attacks. It offers vector-specific appliance, virtual appliance, and cloud-based solutions to detect and block known and unknown cyber-attacks. The company provides threat detection and prevention solutions, including network security products, email security solutions, and endpoint security solutions. It also offers security management and orchestration products, such as Central Management System, FireEye Security Orchestrator, and FireEye Helix platform; and forensics and investigation products, such as Threat Analytics Platform and Enterprise Forensics series of appliances.
out_plist#71126.jpg

INVESTMENT RATING

out_map1#71126.jpg

FEYE is expected to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.

FireEye has a current Value Trend Rating of F (Lowest Rating).
The Value Trend Rating reflects consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. FireEye has a poor Power Rating of 28 and a very low Appreciation Score of 4, resulting in the Lowest Value Trend Rating.

FireEye’s stock is selling significantly above targeted value. The current stock price of $13.10 compares to targeted value 12 months forward of $3.
FireEye’s very low appreciation potential results in an appreciation score of 4 (96% of the universe has greater appreciation potential.)
out_pt#71126.jpg

FireEye has a Power Rating of 28. (This poor Power Rating indicates that FEYE only has a better chance of achieving attractive investment performance over the near to intermediate term than 28% of companies in the universe.)
Factors contributing to this poor Power Rating include: the trend in FEYE’s earnings estimates has been unfavorable in recent months; and recent price action has been unfavorable. An offsetting factor is is in a strong phase current.

INVESTMENT PROFILE

FireEye’s financial strength is high. Financial strength rating is 79.
out_pfit1#71126.jpg

Relative to the S&P 500 Composite, FireEye Inc has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that FEYE is normal risk. High expected growth is a positive for FireEye. Relative weaknesses include: low forecasted profitability, low historical profitability, and low historical growth. FireEye’s valuation is high: low dividend yield, high P/E ratio, and moderate price/book ratio. FEYE has unusually low market capitalization.

CURRENT SIGNALS

FireEye’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.

FireEye’s current technical position is very weak. The stock price is in a 10.0 month down move. The stock has declined 25.7% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.

ALERTS

Recent minimal positive changes in fundamentals have benefitted FireEye Inc (NASDAQ: FEYE): the consensus estimate for December, 2019 increased significantly.
The stock is currently rated F.
On 9/27/19, FireEye Inc (NASDAQ: FEYE) stock suffered a major decline of -16.7%, closing at $0.00. However, this decline was accompanied by unusually low trading volume at 58% of normal. Relative to the market the stock has been weak over the last nine months and has declined -6.5% during the last week.

CASH FLOW

In 2018, FireEye generated a significant increase in cash of +$219.72 million (+25%). Sources of cash were larger than uses. Cash consumed from 2018 EBITDA totaled -$95.11 million. Non-operating sources contributed +$0.97 million (-1% of EBITDA). Cash taxes consumed -$5.52 million (+6% of EBITDA). Withdrawal of investment from the business totalled +$44.11 million (-46% of EBITDA). On a net basis, debt investors supplied +$126.57 million (-133% of EBITDA) while equity investors supplied +$148.70 million (-156% of EBITDA).
out_cflow.1#71126.jpg

FireEye’s Non-operating Income, %EBITDA has experienced a small downtrend over the period. This downtrend was accompanied by an opposite trend for the Fireeye Inc Peer Group. (Since 2016 Non-operating Income, %EBITDA has acccelerated.) In most years, FireEye was in the top quartile and second quartile. Currently, FireEye is above median at -1% of EBITDA (+$0.97 million).

FireEye’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Fireeye Inc Peer Group. In most years, FireEye was in the top quartile. Currently, FireEye is upper quartile at +6% of EBITDA (-$5.52 million).

FireEye’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Fireeye Inc Peer Group. In most years, FireEye was in the top quartile. Currently, FireEye is below median at -46% of EBITDA (+$44.11 million).

FireEye’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Fireeye Inc Peer Group. In most years, FireEye was in the second quartile and lower quartile. Currently, FireEye is lower quartile at -133% of EBITDA (+$126.57 million).

FireEye’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by an opposite trend for the Fireeye Inc Peer Group. (Since 2015 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, FireEye was in the second quartile. Currently, FireEye is substantially below median at -156% of EBITDA (+$148.70 million).

FireEye’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Fireeye Inc Peer Group. (Since 2016 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, FireEye was in the third quartile. Currently, FireEye is lower quartile at -231% of EBITDA (+$219.72 million).
out_cflow.2#71126.jpg

FireEye’s Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Fireeye Inc Peer Group. (Since 2015 Cash, %Revenue has experienced a very sharp decline.) In most years, FireEye was in the second quartile and top quartile. Currently, FireEye is at median at +134%.

PROFITABILITY

FireEye’s operating performance since 2011 is unavailable.
The productivity of FireEye’s assets declined over the full period 2009-2019: asset turnover has suffered a volatile overall downtrend even as it experienced a very sharp recovery after the 2013 low.
out_dpgrfs3#71126.jpg

FireEye’s return on equity is below median (-33.1%) for the four quarters ended June, 2019.
out_dpgrfs3.2#71126.jpg
Operating performance (pretax return on assets) is above median (-8.3%) reflecting asset turnover that is slightly below median (0.30X) and above median pretax margin (-27.5%).
Tax “keep” rate (income tax management) is at the upper quartile (102.5%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is upper quartile (3.88X).

GROWTH RATES

Overall, FireEye’s growth rate has slowed considerably in recent years.
FireEye’s historical income statement and balance sheet growth are not available.

Annual revenue growth has been 8.3% per year.

Total asset growth has been 16.9% per year.

Annual E.P.S. growth is not available.

Equity growth has been 15.3% per year. (More recently it has been -15.9%.)

FireEye’s consensus growth rate forecast (average of Wall Street analysts) is 65.2% — substantially above the average of the historical growth measures.
out_growthgrf#71126.jpg

Relative to the Fireeye Inc Peer Group, FireEye’s historical growth measures are erratic. Total asset growth (16.9%) has been substantially above median. Revenue growth (8.3%) has been at median. Equity growth (15.3%) has been slightly below median. E.P.S. growth is unavailable.

Consensus growth forecast (65.2%) is at the upper quartile.
out_growthgrf.2#71126.jpg

PRICE HISTORY

Over the full time period, FireEye’s stock price performance has been variable and significantly below market. Between October, 2013 and September, 2019, FireEye’s stock price fell -65%; relative to the market, this was a -80% loss. Significant price moves during the period: 1) June, 2015 – January, 2016: -71%; 2) February, 2014 – May, 2014: -62%; and 3) October, 2013 – February, 2014: +126%.
out_price#71126.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of -3.4% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through July, 2019 of -3.4% is upper quartile relative to FireEye Inc Peer Group.

Current 5-year total return performance of -15.8% is lower quartile relative to the S&P 500 Composite.
Through July, 2019, with lower quartile current 5-year total return of -15.8% relative to S&P 500 Composite, FireEye’s total return performance is substantially below median relative to FireEye Inc Peer Group.
out_quartret#71126.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, FEYE’s overall valuation is quite high. The highest factor, the price/equity ratio, is slightly above median. Ratio of enterprise value/revenue is slightly above median. Ratio of enterprise value/assets is near the lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
out_tradv#71126.jpg

FireEye has a very large value gap compared to the median valuation. For FEYE to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 3.39X to 4.33X. If FEYE’s ratio of enterprise value/revenue were to rise to 4.33X, its stock price would be lower by $4 to $17.
For FEYE to hit lower quartile valuation relative to the FireEye Inc Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 3.39X to 2.24X. If FEYE’s ratio of enterprise value/revenue were to fall to 2.24X, its stock price would decline by $-5 from the current level of $13.

VALUE TARGETS

FEYE is expected to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.
FireEye’s current Price Target of $3 represents a -79% change from the current price of $13.10.
FireEye’s very low appreciation potential results in an appreciation score of 4 (96% of the universe has greater appreciation potential.)
Reinforcing this low Appreciation Score of 4, the low Power Rating of 28 contributes to an Value Trend Rating of F.
out_vc#71126.jpg

FireEye’s current Price Target is $3 (-2% from the 2018 Target of $3 and -79% from the 09/27/19 price of $13.10). This plateau in the Target is the result of a -2% decrease in the equity base and a +0% change in the price/equity multiple. None of the Value Drivers has an impact on the price/equity multiple. The forecasted decline in growth has no impact on the multiple. The forecasted decline in cost of equity also has no impact and the decline in return on equity didn’t either.
out_wc.1#71126.jpg
out_wc.2#71126.jpg

PTR’s return on equity forecast is 5.0% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2011 and 2018. The current forecast is steady at the 2017 low of 4%.

PTR’s growth forecast is 3.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2011 and 2018. The current forecast is significantly below the 2016 peak of 30%.

PTR’s cost of equity forecast is 5.8% — in line with recent levels. Forecasted cost of equity exhibited a slight, erratic increase between 2012 and 2018. The current forecast is below the 2016 peak of 9.1%.
out_vc.2#71126.jpg
At FireEye’s current price of $13.10, investors are placing a positive value of $135 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 17.0% per year, and a return on equity of 5.3% versus a cost of equity of 7.5%.
PTR’s 2020 Price Target of $3 is based on these forecasts and reflects an estimated value of existing assets of $11 and a value of future investments of $-9.

About John Lafferty 80532 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.