|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Check Point - Awarded Developments
Posted by: Damian Illia (IP Logged)
Date: April 21, 2014 04:55PM
Founded in 1993, Check Point Software Tech Ltd. (CHKP) is an Israeli-based company which provides hardware and software to address security needs through Information Technology (IT) infrastructure. With a broad range of software and hardware products, their solutions cover network and gateway security, data security and management needs. Check Point reports revenues in two segments: Products and Licenses segment — representing 46% of total revenues for 2013 — and Updates, Maintenance and Subscription segment — which generated 64% of revenues. The company works in geographic regions which include the Americas, Europe and the Asia-Pacific, Middle East and Africa.
The company delivers its product through indirect channels. This situation creates a large dependency from its distributors, introducing some risks for the company’s business. Nevertheless, results delivered in the fourth quarter were above estimations, with increased sales in its software and data center applications. Total revenue was $331.7 million, up 3% year over year. This revenue growth is expected to keep this rhythm as Check Point keeps developing its data center appliances as well as enhancing the data center product lines. Gartner's recent Magic Quadrant for Mobile Data Protection placed Check Point in the "Leaders Quadrant," that is to say the company has earned a stable position within the industry, and its products have become industry standards.
A Safe Choice
Checkpoint was best known when it started for its breakthrough product, FireWall-1, a device designed to protect the network from unauthorized access, equipped with the stateful packet inspection technology. This inspection technology helps to extract and maintain extensive data for providing a framework for screening decisions, from relevant communication layers. The company has enhanced its firewall, including endpoint security, remote access and network security, and has reduced security complexities and lower its total cost. Point 3D Security combines policy, people and enforcement for superior protection of information assets, helping organizations implement a blueprint for security. Approximately all Fortune and Global 100 companies, enterprises, service providers, small- and medium-sized businesses, and consumers use Check Point products and services, and its award-winning ZoneAlarm solutions protect millions of consumers from hackers, spyware and identity theft.
The security solutions company has always been regarded as a leading provider of firewall security and unified threat management (UT). Nevertheless, the IT security industry is constantly changing, and Check Point faces increasing competition. Therefore, the company has to reposition itself as to adapt to the new trends of the market, developing its product portfolio and a broadening of use cases. Competition is stiff within the market for Internet security solutions, and Check Point faces strong competition from well-capitalized players such as Symantec Corp. (SYMC), Cisco Systems Inc. (CSCO), Microsoft Corp. (MSFT) and Juniper Networks Inc. (JNPR). Check Point indeed leads the critical network security market through its VPN products, but while developing new and complete security solutions with new appliances, it faces competition from these big rivals, as well as some other smaller companies such as Sourcefire.
Since 2007, Check Point has been developed an appliance-led model and Software Blade architecture, which enables customers to choose from an archive of software blades and customize the solution depending on each customers’ preferences. As these software blades are cloud based, they are cost effective and have accessibility features which make the product more appealing for customers. During the fourth quarter of 2013, company’s market share in global security appliance market grew from 11.8% to 12.7% year over year, and results for the coming year are promising as global demand for cyber security is increasing and worldwide IT spending is expected to reach $3.8 trillion in 2014, reflecting an increase of 3.1% versus 2013. Being a leader company, Check Point is likely to seize the growth opportunity derived from this increased spending activity.
Recent acquisitions have been made in order to accelerate growth, adding companies such as Swedish firm Protect Data during 2007, which helped Check Point expand into the higher-growth data security market, or the security appliance business, acquired during 2009, which aided the company to develop advanced enterprise security solutions. The acquisition of Face Time application enabled Check Point to use the company’s database to enhance its gateway security solutions, and also took over Liquid Machines Inc., seeking to extend its data security portfolio. A complete portfolio development was reached with the acquisition of Israel-based Governance, Risk Management and Compliance (GRC) solution provider Dynasec Ltd., strengthening its 3D Security portfolio.
The new tax rules of Israel have helped Check Point simplify its tax structure and reduce uncertainties, while allowing the company to upgrade its share buyback plan to $1 billion, having a positive impact on earnings. Generating consistent returns on invested capital in excess of its cost of capital, the company is stable enough and expects an average ROIC of 23% over the next five years.
Competition from different companies in the security application market is increasing, and firms are compelled to deliver advanced technologies every day to suit customers’ requirements, with expedite product introduction. Check Point has a strong product pipeline but still margin expansion is a challenge for the company, as to survive in this highly competitive market, re-investment in research and development is a key factor to deliver innovative technologies as to keep up with consumers’ needs. That’s the reason why these companies struggle with higher operating costs and pricing pressures which affect margins. However, Check Point Software Technologies Ltd. reported fourth-quarter 2013 adjusted earnings of $0.91 per share, and revenues of $387.1 million for the same period, which increased 5.0% year over year.
Check Point expects its revenues in fiscal 2014 to range between $1.44 billion and $1.55 billion while non-GAAP earnings are expected in the range of $3.50 to $3.70 per share. Still Check Point faces competition from networking, infrastructure companies and security companies, although given its successful track record in the security industry it is likely to keep delivering good results while adapting to the new market trends. As a leader in the firewall market since its founding in 1993, and entering the security appliance business in 2006, Check Point has been aggressively growing its enterprise business, and delivering new appliances every year.
Disclosure: Damian Illia holds no position in any of the stocks mentioned.
Stocks Discussed: CHKP, SYMC, CSCO, MSFT, JNPR,