Check Point Software Technologies
) is scheduled to announce its second quarter 2012 results on July
18, before market opens and we see some estimate revisions at this
CHECK PT SOFTW (CHKP): Free Stock Analysis
CISCO SYSTEMS (CSCO): Free Stock Analysis
JUNIPER NETWRKS (JNPR): Free Stock Analysis
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First Quarter Overview
Check Point delivered a decent first quarter, with earnings per
share (EPS) of 68 cents beating the Zacks Consensus Estimates by a
penny. The quarter's results increased 19.3% from a year ago.
Revenue saw an 11.3% year-over-year increase, aided by strong
performances by Product & Licenses as well as Software Updates,
Maintenance and Services segments.
The overall improvement was mainly aided by the growing demand for
the company's security products and strong geographic
contributions. The growth in demand was largely due to a general
customer pattern of upgrading security levels.
For the second quarter, management sees revenue in the range of
$324.0 million to $336.0 million. The guidance reflects some
concern about the macroeconomic environment and Europe. For fiscal
2012, Check Point reiterated its revenue expectations between
$1.345 billion and $1.395 billion. The company also continues to
expect services and subscription revenue to grow faster than
product revenue, based on the product mix shift toward annuity
blades and increasing adoption of premium support contracts.
The company expects EPS of 74-77 cents for the second quarter and
$3.10-$3.20 for the fiscal 2012. GAAP EPS would be 7 cents less
than the non-GAAP figure due to prevalence of some one-time items.
(Detailed earnings results can be viewed in the blog titled:
Product Demand Aids Check Point 1Q)
Agreement of Analysts
As cyber-attacks and security risks reach new levels of
sophistication, customer expectations for security infrastructure
are also increasing. Given Check Point's ability to innovate and
deliver new and improved security products and technologies, it can
be assumed that popularity of the company's products will keep
growing. Hence, a continuous legacy firewall refresh cycle and a
broadening product portfolio could fetch a steady revenue stream.
Analysts are positive on product growth as CHKP has launched a new
appliance series as well as new operating system (OS). They think
that 50.0% of Nokia's customer will upgrade to its new OS system as
it is packed with new features.
Analysts are positive on management's transformation from a largely
single-product, software-focused company to a broader provider of
appliance-based network security solutions. They believe that the
company's transition to its blade architecture provides a
continuous growth avenue for the company, in terms of both up-sell
opportunities and new applications.
On the other hand, some analysts believe that revenue can be under
pressure due to weakening macroeconomic variables, increased
pricing pressure, slowdown in growth, billing and spending by the
company as well as fresh competition in the new target
markets of Check Point, challenges in penetrating new high-end
customers, low number of suppliers and distribution partners.
Out of the 9 and 11 estimates for the second quarter and fiscal
2012, one and two estimates, respectively, were revised downwards
in the past 30 days. However, one estimate was raised for the
second quarter in the past 30 days. Despite the positive momentum,
we think that the downward revision could be due to the strained
macroeconomic condition and ongoing debt problems in Europe, which
could put a lid over IT spending budgets.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the second quarter remained
unchanged at 72 cents for the past 30 days. However, the Zacks
Consensus Estimate for fiscal 2012 decreased 2 cents to $3.02 over
the past 30 days. The Zacks Consensus Estimate for fiscal 2013 also
dropped 2 cents to $3.34 in the past 30 days. The reason for the
downward movement could be reflective of analyst concerns.
We think that investor sentiment will be in Check Point's favor as
shareholders remain encouraged by its market share gains from the
Cisco Systems Inc.
Juniper Networks Inc.
). Check Point continues to benefit from strength at the high end
of the market, and increased demand for its blade solutions.
Moreover, the company's continuous product launches are
encouraging. Considering all these, we believe that the second
quarter and fiscal guidance are quite conservative.
However, limited margin expansion potential (over dependence on
indirect sales model), an uncertain economic environment,
competitive pressures and Check Point's significant European
exposure are concerns.
Currently, Check Point has a Zacks #3 Rank, implying a short-term