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What's in Store for Check Point (CHKP) This Earnings Season?

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Check Point Software Technologies Ltd. (CHKP - Free Report) is scheduled to report third-quarter 2017 results on Oct 31. Last quarter, the company posted a positive earnings surprise of 3.3%. Notably, Check Point Software has outperformed the Zacks Consensus Estimate in each of the trailing four quarters, generating an average positive earnings surprise of 6.6%.

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

Factors to Consider

We believe 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.

With rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.

Moreover, various independent research firms had forecast strong demand in 2017. Gartner had predicted that worldwide Information Security Spending would reach $90 billion in 2017, marking 7.6% growth from the 2016 level of approximately $83.6 billion.

We anticipated that Check Point Software must have capitalized on this opportunity and believe this might be well reflected in the company’s results in the quarter to be reported.

Furthermore, the rapid adoption of Check Point’s data-center appliances and the continued enhancements in the data-center product lines are estimated to provide adequate support to revenue growth. Additionally, the company’s continuous share buybacks bode well for investors.

However, competition from Cisco, Juniper Networks and Fortinet (FTNT - Free Report) , an uncertain economic environment and currency headwinds remain concerns.

Notably, shares of Check Point have gained 37.2% year to date, outperforming the industry’s 26.3% rally.

 

Earnings Whispers

Our proven model does not conclusively show that Check Point Software will likely 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: Earnings ESP for the third quarter is pegged at -1.72%. This is so because the Most Accurate estimate of $1.22 is lower than the Zacks Consensus Estimate of $1.24. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Check Point Software carries a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

NVIDIA Corporation (NVDA - Free Report) with an Earnings ESP of +0.53% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extreme Networks, Inc. (EXTR - Free Report) with an Earnings ESP of +9.75% and a Zacks Rank of 3.

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