Check Point (CHKP) Up 8.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Check Point Software (CHKP). Shares have added about 8.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Check Point due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Check Point's Q3 Earnings & Sales Beat Expectations

Check Point Software Technologies reported third-quarter 2023 results, wherein both the bottom and top lines surpassed the Zacks Consensus Estimate and improved year over year.

The IT security solutions provider reported non-GAAP earnings of $2.07 per share, beating the Zacks Consensus Estimate of $2.02. The bottom line increased 17% from the year-ago quarter’s earnings of $1.77 per share.

Check Point’s quarterly revenues climbed 3% year over year to $596.3 million, which surpassed the Zacks Consensus Estimate of $592 million. The upside was driven by double-digit growth in Security subscription revenues.

Quarterly Details

Security subscription revenues were $248 million, increasing 15% year over year, driven by the adoption of cloud products and strong demand for the Harmony product family. According to our model estimates, Security subscription revenues were likely to grow 11.5% to $241 million.

Products and licenses revenues decreased 13.7% year over year to $114.2 million. Our estimates for Products and licenses revenues were pegged at $116 million, suggesting a 12.4% year-over-year decline. Products, which are currently in the process of transitioning to cloud solutions, have been included in the subscription line.

Total revenues from product and security subscriptions were $362.5 million, up 4.2% year over year.

Software updates and maintenance revenues increased to $233.8 million from $229.7 million reported in the year-ago quarter. The estimates from our model were pegged at $233 million for Software updates and maintenance revenues.

As of Sep 30, 2023, deferred revenues were $1.71 billion, up 4% year over year.

Non-GAAP operating income for the third quarter of 2023 totaled $269 million, up from $263 million in the year-ago quarter. Non-GAAP operating margin remained constant at 45%.

Balance Sheet & Other Details

Check Point exited the third quarter with cash and cash equivalents, marketable securities and short-term deposits of $2.98 billion compared with the previous quarter’s $3.52 billion.

The company generated cash worth $222 million from operational activities during the third quarter of 2023.

It repurchased 2.48 million shares for about $325 million during the reported quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Check Point has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Check Point has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Check Point is part of the Zacks Computers - IT Services industry. Over the past month, ServiceNow (NOW), a stock from the same industry, has gained 14.3%. The company reported its results for the quarter ended September 2023 more than a month ago.

ServiceNow reported revenues of $2.29 billion in the last reported quarter, representing a year-over-year change of +25%. EPS of $2.92 for the same period compares with $1.96 a year ago.

For the current quarter, ServiceNow is expected to post earnings of $2.78 per share, indicating a change of +21.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.8% over the last 30 days.

ServiceNow has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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