Oppenheimer Upgrades FireEye On 'Clearer Path To Profitability'

In a report published Wednesday, Oppenheimer analyst Shaul Eyal upgraded the rating on FireEye Inc (NASDAQ: FEYE) from Perform to Outperform, with a price target of $58, based on the company's long-term plan, "clearer path to profitability" and positive Q2 channel checks.

Channel checks suggest that the company is likely to report strong Q2 results, with the revenue ahead of the guidance and the consensus. A majority of FireEye's VARs reported having met internal goals, along with the absence of any down tick.

The analyst also expects long-term operating leverage via the company's careful opex controls and the shift in the business model towards SaaS.

"While margins improved in FY14, we expect improving operating leverage going forward driven by flattening opex and improving gross margin as FireEye as a Service contributes a higher percentage of revenue," Eyal elaborated.

In order to achieve its long term profitability target in the double digits by 2019, the company would need to attain minimum billings of $2 billion, from the current $600 million.

According to the Oppenheimer report, however, "With a constant 90% renewal rate, we believe FEYE's 2019 $2B billing target, which serves as the basis for improved profitability, is highly feasible."

FireEye has also been able to expand its product offering over the last two years, organically and via M&A. Today, the company has a growing TAM that could be worth more than $10 billion.