2017 May Finally Be The Year The Market Takes A Liking To Check Point Software

Check Point Software Technologies Ltd. (NASDAQ: CHKP) reported its Q4 2016 results ahead of expectations. While 2016 had been a “tough year for security stocks as a whole,” discounting issues seemed to be fading, software blade revenue was accelerating and the company’s tone has become more positive, JPMorgan’s Sterling Auty said in a report.

Auty upgraded the rating on Check Point Software from Neutral to Overweight, while raising the price target from $91 to $115. He mentioned that the market could re-rate the company’s shares higher “on cash flow multiples similar to” those of Aspen Technology, Inc. (NASDAQ: AZPN), Cadence Design Systems Inc (NASDAQ: CDNS), Amdocs Limited (NASDAQ: DOX) and “other more mature, slower growing, but solid cash flow generators.”

Q4 Results

Check Point Software delivered a beat in its top and bottom line. Revenue came in at $486.7 million, versus JPMorgan’s estimate of $477.6 million and the Street’s $477.4 million. Non-GAAP EPS was reported at $1.46, versus JPMorgan’s estimate of $1.24 and the Street’s $1.25.

“Excluding the positive impact from taxes, the beat on the bottom line by 6 cents is still impressive,” Auty noted.

Expectations For 2017

Security companies had witnessed a tough year in 2016 and Check Point Software’s stock had underperformed the S&P 500.

“Discounting on maintenance contracts is expected fade away completely by the end of the year [...] Management plans to invest in S&M and R&D to grab the opportunity existing in the market, especially in the cloud, mobile, and threat prevention that are the focus areas for the company in 2017. However, lower tax rate is more than offsetting the impact from investments leading to EPS topping our previous estimates by 16 cents,” the analyst wrote.

Check Point shares closed Thursday trading at $96.34.

Image Credit: By דוד שי (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

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