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Check Point Beats on Q4 Earnings

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Check Point Software Technologies Ltd. (CHKP) reported fourth-quarter 2013 adjusted earnings (including stock-based compensation but excluding amortization of intangible assets) of 91 cents per share, which beat the Zacks Consensus Estimate by a couple of cents.

Revenues

Check Point’s fourth-quarter revenues of $387.1 million not only increased 5.0% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $383.0 million.

The year-over-year revenue growth was aided by a 6.1% increase in Software Updates, Maintenance and Services revenues and a 3.5% year-over-year increase in revenues from Products and Licenses. The company witnessed higher adoption of its threat prevention blades and Application Control. Moreover, strong demand for CheckPoint’s data center products — the 13500, the 21000 and the 61000 — drove revenues for the quarter.

Geographically, the Americas contributed 47% of the revenues, Europe contributed 37%, while the remaining 16% was contributed by Asia Pacific, Japan, Middle East and Africa region.

Operating Results

Adjusted gross profit (including stock-based compensation but excluding amortization of intangible assets) increased 5.1% year over year to $340.9 million, while margins increased only 10 basis points (bps) from the year-ago quarter to 88.1%, primarily due to higher revenue base.

Adjusted operating expenses (including stock-based compensation but excluding amortization of intangible assets) increased 11.6% year over year as the company continued to invest in the business and hiring for research and development, sales and marketing and technological support. As a percentage of revenues, operating expenses increased 194 bps.

Adjusted operating income (including stock-based compensation but excluding amortization of intangible assets) came in at $214.7 million, up 1.6% year over year. However, margins contracted 188 bps primarily due to higher expenses.

Adjusted net income (including stock-based compensation but excluding amortization of intangible assets) was $179.9 million or 91 cents per share, up from $174.8 million or 86 cents in the comparable quarter last year.

Balance Sheet & Cash Flow

Check Point exited the quarter with cash, cash equivalents and marketable securities of approximately $1.17 billion compared with $1.26 billion in the previous quarter. Cash flow from operations was $58.2 million compared with $195.4 million in the previous quarter.

During the quarter, Check Point repurchased 2.3 million shares at a total cost of $135.1 million. Moreover, the company announced an additional $200 million share buyback plan per quarter up to an aggregate of $1.0 billion.

2014 Guidance

Check Point expects its revenues in fiscal 2014 to range between $1.44 billion to $1.55 billion while non-GAAP earnings are expected in the range of $3.50–$3.70 per share. The Zacks Consensus Estimate for both the top and bottom lines are $1.47 billion and $3.39 per share, respectively.  

Moreover, the company expects its 2014 effective tax rate to increase marginally and range between 20% and 21% owing to the increase in Israeli regular corporate tax rate and the preferred tax rate.

Our Take

Check Point delivered better-than-expected fourth-quarter results, which topped the Zacks Consensus Estimate on both counts primarily driven by growth across its software and data center applications.

The rapid adoption of Check Point’s data center appliances and the continuous enhancements in the data center product lines are expected to provide adequate support to revenue growth. Moreover, the company’s settlement with the Israeli Tax Authorities is a long-term positive. Check Point’s additional share buyback plan should also bode well with the investors.

However, stiff competition from Cisco Systems Inc. (CSCO), Juniper Networks Inc. (JNPR) and Fortinet Inc. (FTNT); an uncertain economic environment, competitive pressures, currency headwinds and Check Point’s significant European exposure are concerns.

Currently, Check Point carries a Zacks Rank #2 (Buy).

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