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Check Point (CHKP) Q2 Earnings: Will the Stock Disappoint?

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Check Point Software Technologies Ltd. (CHKP - Free Report) is set to report second-quarter 2016 results on Jul 26. Last quarter, the company posted a positive earnings surprise of 4.30%. Notably, Check Point Software has outperformed the Zacks Consensus Estimate in all of the trailing four quarters with an average positive earnings surprise of 5.09%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Near-term prospects for Check Point Software are not quite promising as changing customer spending behavior has already compelled one of its rivals, Imperva to lower its second-quarter 2016 outlook. Imperva cut its revenue growth forecast significantly and expects to post a much wider loss than previously projected.

Imperva cited longer sales cycles for bigger deals and decrease in the size of several big purchases for the dull outlook. During the second quarter, it noticed that companies have been breaking their cybersecurity investment plans in phases and implementing the same over time, rather than making a single large investment.

Therefore, we are concerned that 2016 spending may fall to 2014 levels. Notably, cybersecurity spending by companies skyrocketed last year due to a series of high-profile security breaches.

All these factors keep us concerned about Check Point Software’s second-quarter performance.

Earnings Whispers

Our proven model does not conclusively show that Check Point Software will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.03%. This is because the Most Accurate estimate of 96 cents is slightly lower than the Zacks Consensus Estimate of 97 cents.

Zacks Rank: Check Point Software carries a Zacks Rank #4 (Sell).

As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

CHECK PT SOFTW Price and EPS Surprise

CHECK PT SOFTW Price and EPS Surprise | CHECK PT SOFTW Quote

Stocks to Consider

Here are a couple of companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Open Text Corp. (OTEX - Free Report) , with an Earnings ESP of +1.10% and a Zacks Rank #1.

Diebold, Incorporated (DBD - Free Report) , with an Earnings ESP of +5.00% and a Zacks Rank #2.

Boyd Gaming Corporation (BYD - Free Report) , with an Earnings ESP of +3.33% and a Zacks Rank #2.

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