Check Point Software Technologies CHKP shares have gained 19.9% year to date, underperforming the broader Zacks Computer – Technology industry growth of 27.5%.
However, it has outperformed the Computers - IT Services sector and its industry peers like Accenture ACN, DXC Technology DXC and Evolv Technologies EVLV.
Over the same time frame, shares of Accenture have gained 2.9%, while shares of DXC Technology and Evolv Technologies have declined 1.2% and 11.2%, respectively. The industry has appreciated 17.4%.
CHKP’s performance can be attributed to the strength in security subscription revenues, which gained momentum due to the acquisition of Cyberint, leading to an expanded product portfolio in the Security Operation Center. Further, the Harmony product family’s popularity also aided in driving the top line. For the third quarter of 2024, security subscription revenues were $277 million, which increased 12% year over year.
Check Point Software Technologies Ltd. Price and Consensus
Check Point Software Technologies Ltd. price-consensus-chart | Check Point Software Technologies Ltd. Quote
Despite the expanding portfolio offering, unfavorable foreign currency fluctuations, heavy investment in marketing and sales activity, as well as increasing competition in the cybersecurity market, are concerns for investors.
Will CHKP’s Expanding AI Portfolio Aid Prospects?
Check Point recently announced its AI innovation, Check Point Quantum Firewall Software R82, in network security to aid threat prevention and further developments to enhance the efficiency of Infinity Platform.
CHKP’s R82, with 50 enhancements, will assist organizations in safeguarding against zero-day threats like phishing, malware and domain name exploits using 4 new AI integrated engines.
Further, R82 also incorporates new architectural innovations to aid in DevOps agility to drive scalability and simplicity.
Check Point’s enhanced product offering for enterprise customers aims to not only broaden market reach but also enhance product differentiation in a highly competitive cybersecurity market.
Check Point has developed Agile Datacenter operations to aid in app development to simplify firewall virtualization by using automated integration of security policies. This enhancement will not only drive scalability capability but will also quick operations for firewall management.
However, even though Check Point’s expanding portfolio bodes well for investors, competition from new entrants, as well as big companies in the security application market, is a headwind.
Check Point’s increased spending on selling and marketing expenses to remain competitive has led to diminished operating margins. For the third quarter of 2024, selling and marketing expenses increased 14% year over year to $208.9 million, whereas operating margin contracted 350 basis points year over year to 34.4%.
Earnings Estimate Positive
The Zacks Consensus Estimate for fourth-quarter 2024 earnings is currently pegged at $2.66, up 3 cents over the past 30 days, indicating year-over-year growth of 3.5%. The consensus mark for fourth-quarter 2024 revenues is pegged at $698.49 million, indicating year-over-year growth of 5.27%.
For 2024, the Zacks Consensus Estimate for revenues is pegged at $2.56 billion, indicating year-over-year growth of 6%. The consensus mark for earnings is pegged at $9.11 per share, up 3 cents over the past 30 days, indicating year-over-year growth of 8.19%.
CHKP expects its revenues to be in the range of $675 million - $715 million and EPS to be between $2.6 and $2.7 for the fourth quarter of 2024. It aims to boost its top line by integrating and acquiring companies and expects them to generate revenue in 2025.
CHKP’s Stretched Valuation a Concern for Investors
CHKP shares are currently suffering a stretched valuation, as suggested by a Value Score of D.
In terms of the forward 12-month Price/Sales (P/S) ratio, CHKP is trading at 7.48X, higher than the Zacks Computer and Technology sector’s 6.13X.
We expect prospects to remain dull due to macroeconomic headwinds and intense competition in the cybersecurity segment.
CHKP currently has a Zacks Rank #3 (Hold), which implies that investors may want to wait for a more favorable entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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