Why the FireEye Secondary Offering May Have Been a Gift

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FireEye Inc. (NASDAQ: FEYE) may have given long-term investors a gift of chance on Friday. The network security hardware and software maker has been a stock on fire, hitting a high of $97.35 this past week. Then came word out of the blue that FireEye would have a secondary stock offering of 14 million shares at $82 per share. That was after the stock closed at $89.55 on the night before the offering.

Friday’s stock performance was awful, and this offering punished those believers who chased the stock up. Still, many investors missed the boat here and wanted to get in if the stock pulled back. This may have been that opportunity that investors were looking for.

Secondary offerings can cause brutal reactions and aberrations in stocks. This case turned a pullback into a loss of more than 16% from the peak (just 48 hours sooner) at one point on Friday.

Of the 14 million shares sold Friday, only 5.6 million were offered by FireEye itself, leaving close to 8.4 million from holders being sold. They have made out like bandits, so taking profits is logical. What has to be kept in mind is that FireEye came public in late September at just $20 per share. That was above its price range, and the stock’s first day of trading took it up 80% from the initial pricing.

Analysts have been chasing their price targets higher, yet the consensus price target remains under the post-drop on Friday. One analyst report from FBR came up with a street-high $105 price target this past week. That was before the offering, and even though the company acknowledged the offering ahead of time, a smaller share count was expected.

FireEye will use its part of the proceeds to invest in future growth. What we find interesting is that analysts are still modeling for the company to grow handily, but still posting losses in 2014 and in 2015. This company undoubtedly has been the beneficiary of all the hack attacks and data security breaches. That being said, some investors believe that the $9.3 billion market cap can rise higher yet — perhaps much higher.