Back to top

Image: Bigstock

Check Point (CHKP) Tops Q2 Earnings, Down on Soft Q3 View

Read MoreHide Full Article

Continuing with its upbeat performance for the fourth straight quarter, Check Point Software Technologies Ltd. (CHKP - Free Report) yesterday reported strong results for second-quarter 2017. Quarterly revenues came in at the higher-end of the company’s expectations, while earnings were above the guidance range. Moreover, the top and bottom lines, both, surpassed the respective Zacks Consensus Estimate.

Check Point’s adjusted earnings per share (including stock-based compensation but excluding amortization of intangible assets) of $1.14 beat the Zacks Consensus Estimate of $1.11. Adjusted earnings also climbed approximately 18% on a year-over-year basis, driven mainly by higher revenues, efficient cost management and a lower share count.

On a non-GAAP (excluding stock-based compensation and amortization of intangible assets) basis, the cybersecurity company posted earnings of $1.26, higher than its guidance range of $1.17–$1.25, and marked a 15.6% year-over-year improvement.

Revenues

Second-quarter revenues came in at $458.6 million, up 8.5% year over year, and beat the Zacks Consensus Estimate of $455 million. The figure was also close to the upper end of the company’s guidance range of $440–$465 million (mid-point $452.5 million). Quarterly revenues were mainly driven by strong performance of its small and midsize-enterprise product lines as the company has been successfully able to penetrate through the midmarket and acquire new customers.

Segment wise, the company witnessed sales growth of 11.9% in Products & Software Blades, and 4.4% in Software Updates and Maintenance. The company also reported a 27% surge in subscription revenues at Software Blades.

Geographically, the Americas contributed 49% to revenues and Europe accounted for 34%, while Asia-Pacific, Japan, and the Middle East and Africa added the remaining 17%.

Talking about deal size, the number of new customers who signed deals worth $1 million or more totaled 63, flat year over year. Moreover, customers, who signed deals worth $50,000 and more, contributed 71% to the total order value, which is equal to the second-quarter 2016 tally.

Operating Results

On a year-over-year basis, adjusted gross profit (including stock-based compensation but excluding amortization of intangible assets) increased 8.1% to $405.7 million. However, as a percentage of revenues, gross profit contracted 30 basis points (bps) to 88.5%.

Adjusted operating expenses (including stock-based compensation but excluding amortization of intangible assets) rose 6.5% year over year to $180.8 million. However, as a percentage of revenues, operating expenses contracted 80 basis points (bps) mainly due to efficient cost management.

Adjusted operating income (including stock-based compensation but excluding amortization of intangible assets) came in at $224.9 million, up nearly 9.5% year over year. In addition, margins expanded 40 bps to 49% primarily due to lower operating expenses as a percentage of revenues.

Adjusted net income (including stock-based compensation but excluding amortization of intangible assets and other one-time items calculated on a proportionate tax basis) was $191.3 million or $1.14 per share, up from $169 million or 97 cents reported in the year-ago quarter.

Balance Sheet & Cash Flow

Check Point exited the quarter with cash balances of approximately $3.806 billion, slightly down from $3.797 billion at the end of the first quarter. During the first half of 2017, the company generated operating cash flow of $581.7 million. Additionally, Check Point repurchased about 4.9 million shares for a total cost of $496 million in the first two quarters of 2017.

Share Price Performance

Despite reporting robust quarterly results, shares of Check Point dipped 7% during yesterday’s trade as the company hinted that its third-quarter revenues might be hit slightly due to the very special Israeli holiday – Yom Kippur – coinciding with the last day of third quarter.

Israel-based Check Point announced that the entire country will be completely shut down during Yom Kippur and so it won’t be able to operate any business activities. Notably, the company normally derives almost $30 million of revenues in the last few days of any quarter.

However, Check Point expects to mitigate some of the impact during the quarter. Also, despite of all this, the company has maintained the outlook on full-year revenues, which signifies that it is optimistic about its long-term prospects.

Notably, shares of Check Point have gained 27.2% year to date, outperforming the industry’s 21.2% rally.

Outlook

Taking into account the aforementioned factors, the company provided outlook for the third quarter. The company expects to generate revenues between $430 million and $465 million (mid-point $447.5 million). The mid-point of the guidance is lower than the Zacks Consensus Estimate of $462.8 million. Non-GAAP earnings are projected in the range of $1.18–$1.28 per share. GAAP earnings per share are anticipated to be 15 cents lesser than the non-GAAP figure. The Zacks Consensus Estimate is pegged at $1.14 per share.

For 2017, Check Point continues to anticipate generating revenues between $1.85 billion and $1.90 billion (mid-point $1.875 billion). The mid-point of the guided range is higher than the Zacks Consensus Estimate of $1.87 billion. Non-GAAP earnings are projected in the band of $5.05–$5.25 per share. GAAP earnings per share are anticipated to be 70 cents lesser than the non-GAAP figure. The Zacks Consensus Estimate is pegged at $4.69.

Our Take

Check Point continues to report splendid quarterly results for the fourth consecutive quarter. The company’s top and bottom lines not only came ahead of the respective guidance ranges at mid-points, but also marked solid year-over-year improvement. Although, the third-quarter outlook is slightly disappointing, we believe that the company is well capable of mitigating the third-quarter revenue losses in the fourth quarter.

Rapid adoption of Check Point’s data center appliances and continuous enhancements in data center product lines are expected to provide ample top-line support. The company’s focus on enhancing mobile capabilities will enable it to tap greater larger opportunities. Furthermore, Check Point’s strategy of growing through acquisitions is praiseworthy.

Additionally, we believe that Check Point Software will continue to benefit from strong demand for cybersecurity solutions. It should be noted that the financial well-being, brand image and reputation of enterprises, and governments are always exposed to the risk of cyber threats. Consequently, cybersecurity has become a mission-critical, high-profile requirement.

Nonetheless, changing customer spending behavior, intensifying competition, an uncertain economic environment and currency fluctuations remain headwinds.

Check Point currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader technology space are Applied Optoelectronics Inc. (AAOI - Free Report) , Broadcom Limited (AVGO - Free Report) and Advanced Micro Devices, Inc. (AMD - Free Report) . While Applied Optoelectronics and Broadcom sport a Zacks Rank #1, Advanced Micro carries a Zacks Rank #2 (Buy).

Applied Optoelectronics, Broadcom and Advanced Micro Devices have expected long-term EPS growth rate of 18.8%, 13.6% and 6.3%, respectively.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Published in