Sourcefire Inc (FIRE)

[MiamiGent]

FIRE Sourcefire: A Springsteen or a one-hit wonder?
BY MarketWatch— 2:52 PM ET 05/01/2012

http://stockcharts.com/h-sc/ui?s=FIRE

SAN FRANCISCO (MarketWatch) -- In the music industry, it's said that for every band or artist that makes a splash, there are 1,000 others that never make it out of the garage.

This might explain why millions of Bruce Springsteen fans can't hear the Boss's new album playing over the racket coming from their garages, as their 15-year-old son's band mangles "Smoke on the Water."

That ratio of 1,000 to 1 can also be applied, to a degree, to the technology sector. For example, for every Apple Inc. (AAPL), with its rock-star appeal, $39 billion in quarterly sales, blockbuster product launches and $600 stock price (at least until the last few days), there are literally hundreds of smaller companies that barely make a blip, garnering attention under only the rarest of circumstances.

Such is the case of computer network-security firm Sourcefire Inc. (FIRE)

If you haven't heard of Sourcefire (FIRE), it's OK. It's a small business with about 450 employees and $46.3 million in revenue for its fiscal first quarter. Sourcefire (FIRE) is also located in Columbia, Md. There's no shame in any of that, of course, but let's face it: Most minor-league baseball teams bring in more than 450 people to a game, and Columbia, Md. isn't among the major tech-business regions.

So it may be easy to overlook Sourcefire (FIRE) -- only doing so could be a mistake.

This year, Sourcefire's (FIRE) shares have climbed almost 80%, going from $32.38 to as high as $58 Tuesday. That $46.3 million in sales, which Sourcefire (FIRE) reported late Monday, also was up 50% from a year ago. Quarterly earnings were down to $67,000, or break-even on a per-share basis, from $460,000, or 2 cents a share in last year's first quarter.

But excluding one-time items, Sourcefire (FIRE) would have earned $3.4 million, or 11 cents share, beating the estimates of analysts surveyed by FactSet Research, which had forecast the company to earn 8 cents a share on $41.5 million in sales.

That report juiced Sourcefire's (FIRE) shares by as much as 13% on Tuesday. Its second-quarter forecast for earnings of 12 cents to 14 cents a share, on revenue in a range of $46.5 million to $48.5 million, also helped the company's cause. Analysts had forecast Sourcefire (FIRE) to earn 13 cents a share on $46.3 million in sales for its second quarter.

Citigroup analyst Walter Pritchard summed up the feelings of some analysts that cover Sourcefire (FIRE), saying that it "is benefiting from three factors" -- increased investment in its channel-partner program, a refreshed platform of hardware products and a lack of competition in the market for network intrusion-prevention technology.

Of the 18 analysts that FactSet lists as covering Sourcefire (FIRE), nine have a buy or the equivalent of buy rating on the stock; the remaining nine have a neutral take on the company. So even with Sourcefire's (FIRE) hot results and outlook, there is some sense that things might be going too fast, too soon.

Shaul Eyal of Oppenheimer headlined his research note on Sourcefire's (FIRE) earnings saying that "this FIRE keeps cooking," citing the company's "best-in-class solutions" and expansion in sales channels. At the same time, Eyal said he's staying on the sidelines on valuation concerns.

Rob Owens of Pacific Crest said that while he had anticipated a strong quarter for Sourcefire (FIRE), "we don't think these levels can be repeated." Owens, who has a sector perform, or neutral rating on the stock, added that even though the company "is clearly one of the better growth stories in our sector," the stock's valuation "leaves us neutral."

Citigroup's Pritchard, who also has a neutral rating on Sourcefire (FIRE), noted that even though the short-term outlook "is outstanding," there are matters coming up that will test whether Sourcefire (FIRE) can continue with its recent run of hits.

"Technology is converging in network security, we believe, to the detriment" of Sourcefire (FIRE)," according to the analyst. "Medium and long term, larger competitors in this [network-firewall] market will inevitably pressure the opportunity," Sourcefire (FIRE) gets more than 95% of its revenue from intrusion-prevention technology.

For the time being, Sourcefire (FIRE) is making the right kind of noise that is getting noticed on the charts. But besides the potential for a new Springsteen, the view is that the company it has its work cut out to avoid becoming a one-hit wonder.