Is this the Right Time to Buy Check Point Software Stock? - Analyst Blog

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Shares of Check Point Software Technologies Ltd. ( CHKP ) hit a new 52-week high of $80.82 on Dec 24, eventually closing at $80.44. The closing share price represents a one-year return of 26.4% and a year-to-date return of 24.7%. The average trading volume for the last three months aggregated 1,353K shares.

Check Point delivered positive earnings surprises in all the last four quarters with an average beat of 1.5%. This Zacks Rank #3 (Hold) company has a market cap of $15.35 billion with long-term earnings growth expectations of 8.9%.

Notably, the company has also gained momentum from its strong fundamentals and better-than-expected third quarter fiscal 2014 results released on Oct 23, 2014.

Growth Drivers

The recent price appreciation can be attributed to Check Point's rapid adoption of data center appliances and the continuous enhancements in data center product lines. Moreover, recent strategic acquisitions, strong client adoption and buyback strategies are some of the catalysts driving the stock.

Check Point's top line increased 7.6% year over year and also surpassed the Zacks Consensus Estimate, primarily due to growth in its Products & Software Blades, Software Updates and maintenance revenues. Another factor that contributed to the overall growth scenario was the increasing number of large deal signings. During the quarter, Check Point recorded 10% year-over-year increase in customers who signed deals worth $1.0 million or more.

Earnings also came in strong at 84 cents, up from 80 cents reported in the comparable quarter last year and beat the Zacks Consensus Estimate.

The company also provided encouraging fourth-quarter guidance. For the fourth quarter of fiscal 2014, Check Point expects non-GAAP earnings per share (excluding stock based compensation expenses) to be in the range of 99 cents and $1.09 per share, well above the Zacks Consensus Estimate of 98 cents per share.

Also, the company expects its revenues in the range of $395 million to $430 million. The Zacks Consensus Estimate is pegged at $415 million. The company's encouraging guidance was primarily due to higher adoption of its Application Control, Anti-Bot and URL Filtering blades coupled with higher demand for its data center and high-end appliances.

Per IDC's new report, corporate spending on threat intelligence security services will reach $1.4 billion in 2018 from an estimated $905.5 million in 2014. These predictions bode well for Check Point which has launched ThreatCloud IntelliStore, a threat intelligence marketplace enabling enterprises to choose from different customized threat neutralizing solutions.

Additionally, Check Point has extended its security offerings to public cloud services by making its security gateways software available on the Microsoft ( MSFT ) Azure Marketplace.

Moreover, Check Point's 21000, 13000, 41000 and 61000 high-end appliance series (running on blade architecture) have gained traction. Going forward, we believe that Check Point will incrementally benefit from customer upgrades as they deploy the software blade architectures related to Threat Emulation, Application Control and Compliance and their subsequent upgraded versions. As these software blades are cloud based, they are expected to find more takers due to their cost effectiveness and accessibility features.

As things stand now, we believe that Check Point's wide experience in the security space and consistent delivery of such solutions will help it to grow its market share. Nevertheless, an uncertain economic environment, competitive pressures, currency headwinds and competition from Juniper Networks ( JNPR ), Cisco Systems, Inc. ( CSCO ) and Fortinet remain concerns.

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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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