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iStock Of The Day - Check Point Software Technologies, Inc. (CHKP)

 May 14, 2012 10:59 AM

(By Michael Vodicka) The FBI sent out a press release yesterday warning that hackers are "targeting travelers abroad through pop-up windows while establishing an internet connection in their hotel rooms." The new comes on the heels of high-profile security breaches at companies like Visa, Inc. (V), MasterCard (MA) and Google, Inc. (GOOG) that placed millions of personal data files at risk.

Clearly, Internet and network security is a very serious concern for individuals and companies alike. And that has driven demand for products and services for companies that specializes in protecting data and equipment from cyber criminals.

The Company

[Related -Check Point Software Technologies Ltd. (NASDAQ:CHKP): What Could Drive Check Point In 2014?]

Check Point Software Technologies Ltd, (CHKP) is an enterprise security specialist with a market cap of $11 billion. That makes CHKP a small large cap, and having been around since 1993, this is a fairly established name in technology and security.

The company's share price had been on a bit of a roll in early 2012, hitting a series of new highs in late March with the strong market. But CHKP has since fallen, pulling back more than 17% since reporting solid Q2 earnings on April 20 that included guidance to the low end of analyst expectations. But as an industry leader with positive earnings projections and plenty of financial flexibility, there are more than a few reasons to still be bullish on CHKP.

Q2 Results

[Related -Check Point Software Technologies Ltd (CHKP): What To Watch In Q2 Results?]

The first is the company's recent Q2 results, revealing a very healthy company. Revenue was up 11% from last year to $331 million. Earnings also looked good at 74 cents, beating expectations of 69 cents. GAAP income was a record $144 million, up 18% from last year.


The second is valuation, where CHKP's PEG ratio of 1.4X is below the 10 yr. median of 1.6X. The low from that period is .6X while the high is 2.3X, so CHKP trades with a slight bias to the low end of its long-term range.

Financial Profile

The company also has an absolutely ridiculous financial profile, adding another $549 million to its balance sheet from last year to push total cash and equivalents to $3.12 billion against no long-term debt. That solid cash flow is driven by 55% operating margin that clocks in well ahead of the market and its peers.

Earnings and Estimates

Even though shares did recently sell off, the trend in earnings and estimates is still positive. The company's most recent EPS of 74 cents came in ahead of expectations of 69 cents. And looking forward, analysts did revise earnings projections higher, with the full-year estimate adding 3 cents to $3.04. Longer term, the full-year estimate of $3.37 is a fairly bullish 11% growth projection while even further out, analysts are looking for a 5-yr growth rate of 12%.

The Chart

On the chart, CHKP was hot with the market through late April, hitting a series of new highs as technology and the NASDAQ posted big gains. But when CHKP guided to the lower end of analyst projections in its Q2 report, shares took a pretty big hit, pulling back about 17%. But bigger picture, the earnings trend is still intact and the company has plenty of financial flexibility, both of which will support shares and valuation.

The Big Picture

Check Point traded strong all year long until slightly disappointing the Street with guidance at the low end of analyst expectations. But this is hardly some fad, technology company with no earnings to back up a share price. Check Point is a leader in its space with high margins and plenty of cash flow. So even though guidance didn't quite please the Street, the long-term view is a solid company in a growing industry.

Check Point Daily Chart-Sharp Pullback from High

(enlarge to open)


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