Check Point Software Technologies Inc (CHKP)

[midastouch017]

UBS downgrades Check Point
The bank says the cancellation of the Sourcefire acquisition leaves Check Point without a real growth engine.

Globes correspondent 30 Mar 06 11:39

UBS has downgraded its recommendation for Internet security technology company Check Point (Nasdaq: CHKP) from "Overweight" to "Neutral", and lowered its price target for the company's share from $29 to $23.2. This compares with a closing price yesterday of $24.87, which gives the company a market cap of $4.92 billion.
The cancellation of the $225 million acquisition by Check Point of US company Sourcefire, after the Committee on Foreign Investment in the US (CFIUS) launched an extended inquiry into the deal, prompts UBS analysts Avshalom Shimei and Will Manuel to ask, "Can Check Point breach its modest growth tradition anytime soon? Can it outreach some of its more aggressively growing peers? Will it reduce its high reliance on enterprises’ IT security spending, which seems to refuse to pick up - similarly to the overall soft IT spending trends in 2005?" Shimei and Manual say they see little evidence that Check Point is about to answer positively to any of these questions.

According to the analysts, the acquisition of Sourcefire "would have provided Check Point a good entry point to the growing IPS business with the potential of becoming a material growth engine in few years time."

As far as Check Point's valuation is concerned, Shimei and anuel write, "Peer group average 2007 EPS growth stands at 24% versus Check Point’s at 9% (HSBC estimates). We believe this discount will be present as long as Check Point’s earnings growth rate fails to pick up and align with its peer group."

Published by Globes [online], Israel business news - www.globes.co.il - on March 30, 2006

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