Technology Beat: Analysts Take On Microsoft Corporation (MSFT) And FireEye Inc (FEYE)


Analysts chime in on technology companies Microsoft Corporation (NASDAQ:MSFT) and FireEye Inc (NASDAQ:FEYE). While Microsoft recently announced a new deal with FIH Mobile and HMD Global Oy, FireEye experienced a switch up in management. See how these events influenced analyst recommendations:

Microsoft Corporation

Microsoft announced last week that it had reached an agreement to sell its feature phone assets to FIH Mobile Ltd. and HMD Global, Oy. The $350 million deal also includes Microsoft Mobile Vietnam, which is the company’s manufacturing facility in Hanoi, Vietnam, and will involve transferring approximately 4,500 employees in the manufacturing facility. The transaction is subject to regulatory approval and is expected to close in the second half of this year.

In light of these events, Jeffries analyst John Difucci reiterated a Sell rating on MSFT with a price target of $40.00.

The analyst reasons, “We appreciate the company’s rationale for this transaction as MSFT exits what seemed to be a challenging strategy from the day it was announced. It also helps to reduce aggregate expenses – something that has become expected by investors, but we believe will be more difficult for mgmt to deliver on an organic basis.”

DiFucci notes that the deal will help to reduce operating expenses, which he believes have “become an increasingly more difficult task to accomplish.” The analyst elaborates on the aspect of expense reduction that will come from the deal, noting it will “help to reduce aggregate expenses – something that has become expected by investors, but we believe will be more difficult for management to deliver on an organic basis.”

The analyst expresses his skepticism, mentioning, “At the same time, we do not expect [the transaction] to affect the bottom line very much at all, especially given the scale of the aggregate Microsoft business relative to this unit.” He explains, “While we are not updating our model until after the closing of the deal, if we assume a range of $25,000 to $50,000 in costs per employee (lower cost employees relative to MSFT average), this could ultimately result in $112.5M to $225M in labor expense savings annually.”

This being said, the analyst does not expect these changes to affect the EPS very much, given the “relative scale of the aggregate MSFT business relative to this unit.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst John Difucci has a yearly average return of 4.5% and a 54% success rate. Difucci has a -4% average return when recommending MSFT, and is ranked #635 out of 3929 analysts.

The average analyst consensus for Microsoft is Moderate Buy, with 67% of analysts bullish, 25% of analysts neutral, and 8% of analysts bearish. All recommendations amounted to a 12-month average price target of $57.37, marking a 13.33% upside from where shares last closed.

FireEye Inc

Cyber security company FireEye has recently undergone management changes, dividing operational responsibilities between CEO Kevin Mandia, CFO/COO Mike Berry, and President Travis Reese.

In light of this, William Blair analyst Jonathan Ho weighed in on the stock, reiterating an Outperform rating, without providing a price target.

Ho mentioned, “We are particularly enthusiastic about the improved focus, discipline, and execution in the business, which should be enhanced by the recent set of management changes.” He continues, “improved focus on execution and cost containment will allow the company to overcome concerns over the profitability potential of the business.”

The analyst believes FireEye is underappreciated by investors who share concern regarding company transitions in management and business model. He alleviates the situation, explaining the company will “exit its management and product transition as a stronger company with improved cost discipline, a more defensible set of differentiated products, and a more focused approach to growth.”

He mentions profitability can be achieved through control of the company, while concerns regarding competition can be addressed by the release of new products. Ho claims the stock will prove successful, assuring, “We would be buyers of the stock.” The analyst states that one of the key factors in maintaining and regaining investor confidence will involve demonstration of the company’s ability to efficiently execute cost containment initiatives as well as the ability to achieve “near-term profitability targets.”

Ho concludes, reaffirming his confidence in company success, noting, “In our view, the decision by CEO Kevin Mandia, CFO/COO Mike Berry, and President Travis Reese to acquire a significant number of shares beyond their equity compensation suggest that they see significant potential for the stock to appreciate from current levels.”

According to TipRanks, Ho’s prediction succeeded 50% of the time, ultimately delivering a one-year average return per recommendation of 5.3%. 

The average analyst consensus for FEYE is Moderate Buy, with 41% of analysts bullish and 59% of analysts neutral. All recommendations amounted to a 12-month average price target of $22.50, marking a 63.16% upside from where shares last closed.