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Is the Time Ripe to Build Positions in Check Point (CHKP)?

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Are you looking for a hot stock that has high chances of outperforming in 2017? Check Point Software Technologies Ltd.CHKP should then find a place in your portfolio.

Shares of the company have been escalating since it reported impressive fourth-quarter 2016 results. The indicators of a stock's bullish run include a rise in its share price and continued uptrend in estimates.

Check Point registered solid returns of approximately 32.7% in the last six months, outperforming the Zacks categorized Computer-Software industry's gain of 13.1%.

Estimate Revision

In the last 60 days, the Zacks Consensus Estimate for Check Point's current quarter and fiscal 2017 witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is pegged at $1.07 per share, down from earnings of $1.03 per share earlier. The Zacks Consensus Estimate for fiscal 2017 is now pegged at $4.71 per share compared with $4.39 projected 60 days ago.

Digging Into The Earnings Details

Check Point's adjusted earnings per share (including stock-based compensation but excluding amortization of intangible assets) of $1.33 beat the Zacks Consensus Estimate of $1.15. Adjusted earnings also increased approximately 21% on a year-over-year basis, primarily driven by higher revenues and a lower share count, which were partially offset by higher operating expenses.

Fourth-quarter revenues came in at $486.7 million, up 6.3% year over year, and ahead of the Zacks Consensus Estimate of $477 million. The figure was also close to the upper end of the company's guidance range of $460 million to $490 million (mid-point $475 million).

Check Point witnessed higher demand for data center and high-end appliances. Another factor contributing to overall growth was the increased number of large deal signings.

Considering the back-to-back quarters of favorable business trends, Check Point provided a strong revenue and earnings guidance for first-quarter and full-year 2017.

For the first quarter, the company expects revenues between $420 million and $440 million. The Zacks Consensus Estimate is pegged at $432 million. Non-GAAP earnings are projected in the range of $1.15 to $1.20 per share. The Zacks Consensus Estimate is pegged at $1.07 per share.

For 2017, Check Point expects revenues between $1.85 billion and $1.90 billion. The Zacks Consensus Estimate is pegged at $1.870 billion. Non-GAAP earnings are projected in the range of $5.05 to $5.25 per share. The Zacks Consensus Estimate is pegged at $4.71 per share.

Encouraging top and bottom-line guidance for the fourth quarter also helped in boosting investors' confidence in the company.

Other Driving Factors

Check Point's data center appliances and continuous enhancements in data center product lines are expected to provide ample top-line support.

Moreover, we believe that Check Point Software will continue to benefit from strong demand for cybersecurity solutions. Note that the financial well-being, brand image and reputation of enterprises and governments are always exposed to cyber threats. Hence, cybersecurity has become a mission-critical, high-profile requirement.

Per IDC's report, corporate spending on threat intelligence security services will reach $1.4 billion in 2018 from an estimated $905.5 million in 2014. Another research firm, MarketsandMarkets, projects that the global threat intelligence security market will reach approximately $5.86 billion by 2020 from $3 billion in 2015, representing compound annual growth rate (CAGR) of 14.3%.

Check Point is capitalizing on this opportunity and this may well get reflected in the company's forthcoming quarterly results. Additionally, the company's efforts toward continuous share buybacks bode well for investors.

Considering these positives, we believe that Check Point is one such technology stock that deserves a place in investors' portfolio.

Check Point also delivered positive earnings surprises in three out of the last four quarters with an average beat of 6.02%.

Moreover, from a valuation perspective, the stock looks attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. Check Point currently trades at a forward P/E of 21.32x compared with the industry group average of 67.80x.

Hence, there is still a lot of momentum left in this Zacks Rank #1 (Strong Buy) stock, which is evident from its long-term earnings growth rate of 10%.

The stock is in the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.

Other Stocks to Consider

Other stocks worth considering in the broader technology sector are Seagate Technology plc STX , Western Digital Corporation WDC and Micron Technology, Inc. MU , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here

Seagate, Western Digital and Micron have a long-tern expected earnings growth rate of 8.17%, 12.11% and 10%, respectively.

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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

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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.


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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