Merrill Lynch: Sourcefire strategic positive for Check Point
Analysts Edward Maguire and Garrett Bekker recommend buying Check Point shares on their current weakness.
Globes correspondent 9 Oct 05 10:20
US investment house Merrill Lynch is strongly approving of the latest acquisition by network security company Check Point (Nasdaq: CHKP). In a note dated October 6, analysts Edward Maguire and Garrett Bekker say that the benefits to Check Point will be strategic, and they recommend buying the company's share, particularly on its current weakness.
"Management expects Sourcefire to contribute 6-8% of 2006 revenues, with ~$0.02 EPS dilution expected in the first half of 2006. The $225 million purchase price values Sourcefire at 7-8x trailing 12-month revenues and 4-5x 2006 sales - not inexpensive but in line with prevailing premiums for premier private security vendors," Maguire and Bekker write.
"Though Check Point should benefit financially from the addition of Sourcefire, we think the more meaningful benefits are strategic. Check Point gains adjacent and highly relevant technology to broaden the portfolio, which increases the company's strategic value to customers and improves competitive positioning against Cisco, NetScreen/Juniper and IPS focused vendors McAfee and Tipping Point/3Com.
"For some time we have held that acquisitions would be key to regenerate momentum within Check Point's business. The ZoneLabs acquisition in 2004 helped Check Point diversify into the endpoint security market. Sourcefire benefits from a more established (and enthusiastic) channel ecosystem, and we believe Check Point's VARs should be able to more rapidly become productive with new products. Initial reseller reactions have been surprisingly positive (including some that have been critical of Check Point's direction), which reinforces our positive stance.
"Check Point's weakness in 3Q results appears to be International, despite steady improvement in commentary from U.S. resellers. Seasonal softness in Europe would not be altogether surprising - lthough we note Check Point's 4Q is historically strongest.
"Although the market for the company's core Firewall-1 and VPN-1 products is maturing, the new NGX platform provides an architectural foundation to unify management of the broad product portfolio. This in turn provides greater incentive for customers to standardize on Check Point as the key vendor for perimeter, endpoint and internal security solutions.
"We think the reaction to Check Point's news today is overdone and would be buyers, particularly on today's weakness. We note the $5-6 million revenue difference with consensus was at the low end but still within management's guided range. With favorable seasonal trends ahead (as well as increasing signs of challenges among key competitors) we think Check Point remains favorable positioned both for the near and longer term."
Check Point shares closed on Friday at $20.93, giving the company a market cap of $5.14 billion. Merrill Lynch's 12-month price objective for the stock is $25.
Published by Globes [online], Israel business news - www.globes.co.il - on October 9, 2005
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