FireEye Upgraded By BTIG, Firm Sees 'Clear Path' To Positive Free Cash Flow

• Amid volatility, FireEye Inc (NASDAQ: FEYE) shares have lost 32 percent since January 11.
• BTIG’s Joel P. Fishbein upgraded the rating for the company to Buy, with a price target of $15.
• The company is shifting its focus to greater stability and generating free cash flow, Fishbein stated.

Investors have been focusing on whether FireEye’s growth has bottomed, and if the company would be able to scale its previous heights. Analyst Joel Fishbein believe that the bigger picture has been missed, since the company is transitioning from growth-at-all-costs towards increased stability and generating free cash flow.

Fishbein believes that FireEye “hit the reset button” on growth by taking a conscious decision to set the bar low when it announced the iSight acquisition. The company guided to 20 percent organic billings growth for FY16. This, along with “no real deviation in DSOs from 2H15 levels,” points towards the positive free cash flow guidance for FY16 being achievable by further control on expense growth.

“One of our primary concerns when we launched coverage was the sheer scale of expense unwinding that needed to occur to reach profitability. Regardless of top-line growth concerns, though, guidance implies that opex will grow by “only” 20% in F15 (vs. ~130% in F14),” the analyst wrote.

While breakeven on the P&L is unlikely to happen in the near term, with top-line growth at around 25 percent, FireEye would be able to achieve positive FCF by slowing FY16 opex growth to 10 percent, Fishbein commented.

“Therefore, we believe the company is on the cusp of giving investors more of what they’re looking for in this environment: better revenue visibility, tighter cost control, and positive cash flow. The story is switching, and given that sentiment continues to be negative, we think current trading levels are a good entry point for FEYE shares,” the BTIG report noted.