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What's in Store for FireEye (FEYE) This Earnings Season?

FireEye Inc. FEYE is set to report first-quarter 2016 results on May 5. Last quarter, the company posted narrower-than-expected loss. Let’s see how things are shaping up for this announcement.

Factors at Play

FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to both enterprises and governments.

The company reported mixed fourth-quarter results, wherein its bottom line compared favorably with the Zacks Consensus Estimate, but the top line missed the same. Despite the persistent macro uncertainty, the company seems optimistic based on a healthy security market, strong product line-up, deal wins and investment plans, which should boost results in the to-be-reported quarter.

During the quarter, FireEye acquired iSIGHT Partners. David DeWalt, FireEye’s CEO and chairman of the board stated, “This acquisition extends FireEye's intelligence lead with an offering no one else in the industry can match”. Therefore, the deal will boost FireEye’s cyber security suite and improve its competitive dynamics.

Also, FireEye acquire Invotas, a firm specializing in improving response times after attacks, during the quarter. Invotas’ lead product – Security Orchestrator – has been designed to compile information from a range of security products and automate responses when an incident occurs.

Furthermore, FireEye recently launched a new product of its own, FireEye Essentials. This product is a lower-cost and simpler version of the FireEye Global Threat Management Platform. With this offering, the company intends to target smaller, midmarket companies.

These moves are important as they indicate FireEye’s efforts on moving past the enterprise-level end-point protection products it had started with. Also, these factors are likely to aid its results in the to-be-reported quarter.

However, an uncertain economic environment, competition from the likes of Palo Alto Networks Inc. PANW and Juniper Networks, and unfavorable currency translations remain concerns.

Earnings Whispers

Our proven model does not conclusively show that FireEye is likely to beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for FireEye is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 89 cents.

Zacks Rank: FireEye has a Zacks Rank #2. Though this increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

A Stock to Consider

Here is a company worth considering which, as per our model, has the right combination of elements to post an earnings beat this quarter:

Fitbit Inc. FIT has an Earnings ESP of +175.00% and a Zacks Rank #2.

Microchip Technology Inc. MCHP has an Earnings ESP of +3.33% and a Zacks Rank #2.

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MICROCHIP TECH (MCHP): Free Stock Analysis Report
PALO ALTO NETWK (PANW): Free Stock Analysis Report
FIREEYE INC (FEYE): Free Stock Analysis Report
FITBIT INC (FIT): Free Stock Analysis Report
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