Wed: Comverse vs Check Point
Analysts favor Comverse over Check Point because they say that the former is growing, but what about value? Perhaps the real difference lies in the difference between the Wall Street smarts of the two companies’ CEOs.
Shlomo Greenberg
I read yesterday that CE Unterberg, Towbin, after a first-hand look at things, retained its “Buy” recommendation for the Check Point (Nasdaq: CHKP) share. The study noted that the recommendation was based on the fact that inquiry revealed that Juniper Networks (Nasdaq: JNPR) was losing its sales power in the security field. Juniper (which yesterday acquired Kagoor) previously acquired NetScreen Technologies, which analysts once predicted would wipe out Check Point. In essence, however, the recommendation is based on value.
CE Unterberg, Towbin believes that the Check Point share has the potential to rise by 20%, because of the economic value that it offers. Incidentally, Credit Suisse’s upgrading of its recommendation for Check Point on Monday was also based on the value offered by the share. What’s really going on here is a psychological game between the value that analysts find in the share every time it goes down, and the panic that sets in every time the share tries to go up a little.
This sequence of events, so typical of the analysts covering Check Point, no longer applies to Comverse Technology (Nasdaq: CMVT). If you remember, it wasn’t so long ago that most analysts agreed that Comverse had lost its market, and that the share should therefore be sold, or at best, held. The share was between $7 and $13 at that time. Two years have passed, and Comverse has become the darling of the analysts, most of whom have upgraded their recommendations for the share to “Buy”. 15 of the 20 analysts covering Comverse recommend “Buy”. In March alone, three more highly respected investment houses Oppenheimer, UBS, and Merrill Lynch (two days ago) - hopped on the “Buy” recommendation bandwagon.
Why did analysts formerly recommend selling the share? Because of precisely the same worries that assail them concerning Check Point. The problem with the old Comverse was that it had lost its sparkle. True, it was all dressed up in wonderfully professional and confident terms and jargon that only analysts use, but it all boiled down to the feeling that the company would have a hard time escaping its predicament.
For all those who sold the Comverse share at $6-7, it is now recommended to buy it at $24, and I’m not being cynical. I simply must explain this phenomenon to people on Main Street unversed in the Wall Street mentality. The explanation is simple times have changed. I only hope that, whether the recession returns, or whether economies continue to grow, analysts include Main Street’s considerations in their own very sophisticated calculations.
According to Merrill Lynch, for example, Comverse will earn $0.51 per share this year, and $0.73 per share next year (2006). Comverse is currently traded at $25, so the forecast reflects multiples of 49 for 2005 and 34 for 2006. Check Point is traded at multiples of 17.8 for 2005 and 16.3 for 2006. The difference is due to the analysts’ concept that Comverse is now growing far more rapidly than Check Point.
The real difference, however, is between Comverse CEO Kobi Alexander and Check Point CEO Gil Shwed. Alexander grew up on Wall Street, and knows its customs and behavior patterns. In the troubled Wall Street waters, he swims like a shark. Shwed also swims in the same waters, but like a sardine. That’s the difference, and anyone who doesn’t understand should go and spend 10-12 years on US stock exchanges.
Published by Globes [online], Israel business news - www.globes.co.il - on March 30, 2005
Midas
