Merrill Lynch finds Check Point attractive
"We are comfortable that improvements will follow as the year unfolds."
Globes correspondent 19 Apr 05 13:06
Merrill Lynch contimues to rate network security company Check Point (Nasdaq: CHKP) "Buy", with a $30 price target, following yesterday's quarterly results release and the company's conference call. Analyst Edward Maguire says he finds the company's share attractive at current levels. Check Point shares fell 1.97% on Nasdaq yesterday, to $21.37. At that price, the company has a market cap of $5.3 billion.
"Check Point's 1Q05 results were mixed but nevertheless demonstrate overall resilience of the business. While licenses lagged, subscriptions and cost efficiencies drove EPS upside. Despite a solid 2Q05 outlook, near term appreciation depends on improving license traction," Maguire writes.
"Nonetheless, we remain confident in fundamentals and have raised estimates slightly to reflect EPS upside. Given attractiveness at current levels, we reiterate our Buy and $30 target.
"Licenses of $65 million (+4%) missed expectations and likely reflect organic declines in core products. New products increased to 28% of sales from 25% in 4Q. Given seasonal factors, a pending upgrade cycle for core products and signs of solid activity in 2Q05 we are comfortable that improvements will follow as the year unfolds.
"Offsetting weaker license growth was strong subscription revenue and healthy (+6.4% Q/Q) growth in deferred revenues (which represent 12% of our next 12-monthe revenues). Management believes the mix shift toward subscriptions and services is seasonal - but it will take another quarter to bear this out.
"Despite a relatively slow 1Q05, security fundamentals remain strong and valuation is attractive, in our view. We continue to recommend Check Point as we believe the expanding portfolio, deep franchise and continuing focus on security provide a basis for continued appreciation in the stock.
"Our price objective of $30 is derived by applying a 26X multiple to our 2005E EPS. Our multiple is derived by applying a 2.2X PE/Growth (the average of the Security Software group) to our normalized EPS growth rate of 12%. Risks to our target are execution, competition and weaker than expected economy."
Published by Globes [online], Israel business news - www.globes.co.il - on April 19, 2005
Midas
