CHKP Check Point Software Technologies Inc

Check Point Software Technologies (CHKP) is scheduled to announce its fourth quarter 2011 results on January 17, 2012 before market opens and we see limited estimate revisions at this point.

Third Quarter Overview

Check Point delivered a decent third quarter, with earnings per share of 67 cents beating the Zacks Consensus Estimates by a penny. The quarter’s results increased 13.6% from a year ago. Revenue saw a 12.8% year-over-year increase, aided by strong performances by the Product & Licenses as well as Software Updates, Maintenance and Services segments. However, the overall improvement was mainly aided by the growing demand for its security products.

Check Point has earned a reputation among customers and analysts for providing simple, all-in-one security solutions that provide the highest level of protection to small and mid-sized businesses and remote/branch offices. Hence, we believe new product ramp up will better serve the growing demand for Check Point’s security products.

Management Guidance

Management raised its full-year 2011 outlook and provided fourth quarter 2011 guidance. Top-line growth of 11.1% is expected for the fourth quarter and 13.3% for the full year (up from 12.7% previously). Regarding non-GAAP earnings per share, management expects 79–82 cents in the fourth quarter, representing a 10.5% growth at the midpoint, and $2.83–$2.86 for the full year, implying 14.7% growth (up from 13.1% previously).

(Detailed earnings results can be viewed in the blog titled: Steady Performance by Check Point)

Agreement of Analysts

Given the company’s broader suite of offerings and its steadily growing annuity blade content, growing network security spending and continuous share gains, some analysts believe its projected growth rate should exceed the guidance. Also, the analysts are encouraged by the company’s ongoing appliance upgrade adoption cycle and momentum on the software blade architecture front.

The analysts are also confident about Check Point’s market share gain versus tech giant Cisco Systems Inc. (CSCO) based on strong demand for its high-end (Power-1) and mid-range (UTM-1) appliances. The analysts are also optimistic about the improved enterprise information technology spending environment.

Out of the 11 and 12 analysts providing estimates for the fourth quarter and fiscal 2011, respectively, none revised their estimates upward in the past 30 days. But there was only one downward revision for the fiscal 2011 and 2012 in the past 30 days. Despite the positive momentum, we think that the downward revision could be due to strained macroeconomic condition and ongoing debt problems in Europe, which could put a lid over IT spending budgets.

Magnitude of Estimate Revisions

There was no change to the Zacks Consensus Estimates for the fourth quarter and fiscal 2011 over the past 30 days. However, the Zacks Consensus Estimate for fiscal 2011 increased 2 cents to $2.69 over the past 90 days. The reason for the uptick could be the growing demand for Check Point’s security products. The Zacks Consensus Estimate for fiscal 2012 grew a penny to $2.99 in the past 90 days.

Recommendation

We remain encouraged by the steady traction of Software Blade architecture (security solution) that will likely lead to a solid fourth quarter. We believe this would result in considerable upside to the shares.

In order to address the growing security needs of customers, attain operational excellence and expand market share, Check Point continues to invest in R&D. Apart from security, Check Point is also focusing on the mobile Internet and cloud computing space. According to the analysts, these strategic initiatives to expand its operational footprint from its core network firewall market to adjacent network security will not only enhance its market position, but will also provide the company with a competitive advantage over its peers Cisco Systems and Juniper Networks Inc. (JNPR). But these investments could rationalize its margin performance in the near term.

However, competitive pressures and Check Point’s significant European exposure are concerns.

Currently, Check Point has a Zacks #4 Rank, implying a short-term Sell recommendation.

 
CHECK PT SOFTW (CHKP): Free Stock Analysis Report
 
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
 
JUNIPER NETWRKS (JNPR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research