Sourcefire Shines on Security Fears

COLUMBIA, Md. ( TheStreet) -- Sourcefire ( FIRE) may not be as well known as Symantec ( SYMC) or McAfee, now part of Intel ( INTC), but the security specialist has earned an impressive reputation among government organizations and businesses that need serious data lockdown.

Sourcefire briefly hit the headlines in 2006 when an attempt by Israeli firm Check Point ( CHKP) to buy the company became a political issue. Sourcefire's Snort intrusion detection technology is widely used in the U.S. intelligence community, prompting Washington lawmakers to cite national security concerns about a possible Sourcefire sale.
Shares of Sourcefire have climbed more than 47% this year.

Six years later, and still a standalone company, Sourcefire has successfully extended its reach beyond its flagship Snort technology. Last month the company reported record fourth-quarter results as it reaps the benefits of a revamped product line.

"It's sort of a confluence of a few things coming together at the right time," said Sourcefire CEO John Burris, during a post-earnings interview with TheStreet. "We have become a multi-product company after a great run with an open-source product called Snort."

Burris pointed to the company's Next-Generation Firewall and its FireAMP anti-malware offering as evidence of its broadening product strategy.

"The traditional IPS (Intrusion Prevention System) market that we are playing in has been sized by the likes of Gartner to be a little over $2 billion by 2015," he said. "We're now going to be playing in a nearly $10 billion market."

One of the TheStreet's Breakout Stocks, Sourcefire recently hit a new 52-week high, and the company's shares have climbed more than 47% this year.

Bryan Ashenberg, TheStreet's Breakout Stocks Portfolio Manager, is bullish on Sourcefire, citing the business-critical nature of the company's products and the prioritized nature of security software spending.

Sourcefire, however, is up against much bigger rivals, such as Tipping Point, now part of HP ( HPQ), and Intel's McAfee business, as well as networking giants like Cisco ( CSCO) and Juniper ( JNPR).

Not that Burris is daunted. "We could really grow fast - we're small enough that we can creep up on guys," he told TheStreet. "There's so much consolidation in the industry, there's very few pure plays left that are maniacally focused on security, but we're one of them and that makes a big difference."

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"This is actually a discipline that requires a lot of focus to do well," added Martin Roesch, the Sourcefire CTO. Intrusion Detection technology, he added, must be continually adjusted to deal with the latest network threats.

Sourcefire has also been aggressively growing its list of channel partners, which now number just under 600, up from 339 a year ago, and 177 at the beginning of 2010.

The security specialist enjoyed 40% year-over-year revenue growth during its fourth quarter, and Burris believes Sourcefire should be able to grow revenue 20% on an annual basis over the next few years.

Sourcefire enjoyed strong enterprise momentum during the fourth quarter, and it's expected to see a boost in its government business during the coming months.

"From a growth perspective, we believe the results reflect continued momentum, solid execution, and provide evidence that the significant investments Sourcefire has been making are yielding results," said Todd Weller, an analyst at Stifel Nicolaus, in a recent note. "We see a more positive 2012 growth outlook for Sourcefire driven by potential product cycle benefits, the potential for its Federal government business to be better than expected, and the return of some degree of margin expansion."

Weller has a buy rating on Sourcefire. Overall, the sell side is split on the stock. Nine of the 17 analysts covering the shares are bullish at either strong buy (5) or buy (4) with the remainder on the sidelines at hold (8).

The median 12-month price target of $46 is below Wednesday's regular session close of $47.70, so valuation may be an issue. At current levels, the shares are up nearly 90% in the past year and trade at a hefty forward price-to-earnings multiple of 52.4X.

-- Written by James Rogers in New York.

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