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Why Is Check Point (CHKP) Down 1.7% Since Last Earnings Report?

Zacks Equity Research
·4 min read

It has been about a month since the last earnings report for Check Point Software (CHKP). Shares have lost about 1.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Check Point due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Check Point Tops Q3 Earnings & Revenue Estimates

Check Point reported third-quarter 2020 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. The company’s non-GAAP earnings per share of $1.64 beat the consensus mark of $1.53. The figure also climbed 14% year over year.

Revenues for the reported quarter came in at $509 million, up 4% year over year. Moreover, the figure exceeded the Zacks Consensus Estimate of $502.5 million. Growth in SaaS and IaaS cloud solutions drove the top line. In addition, work-from-home-related solutions — Mobile Access and Sandblast Agent — continued to witness strong traction.

Quarter Details

Subscription revenues came in at $169 million, increasing 10% year over year, on strong demand for its advanced solutions, primarily CloudGuard, Sandblast Zero-day threat prevention and Infinity solutions. During the third quarter, the company secured several Infinity deals in various industries, including government, telecommunication and industrial.

Revenues of $120.2 million from products and licenses inched up 1.6%. Products are currently in the process of transitioning to cloud solutions, which is included in the subscription line.

Total revenues from product and security subscriptions came in at $289 million, up 6% year over year.

Software update and maintenance revenues inched up to $220 million from the $218.7 million reported in the year-ago quarter.

As of Jun 30, deferred revenues were $1.3 billion, up 5% year over year, reflecting strength in security subscription.

Region wise, the Americas generated 46% of total revenues; Europe, Middle East and Africa accounted for 42%; and the Asia Pacific contributed 12%.

Non-GAAP operating income for the reported quarter came in at $265 million, increasing 7.5% year over year. Non-GAAP operating margin expanded 190 basis points to 52.1%.

Balance Sheet & Other Financial Details

Check Point exited the third quarter with cash and cash equivalents, marketable securities and short-term deposits of $3.90 billion compared with the previous quarter’s $3.96 billion.

The company generated cash worth $248 million from operational activities, down from the previous quarter’s $252 million.

It repurchased 2.7 million shares for about $325 million during the September-end quarter.

Outlook

Check Point has issued the guidance for the fourth quarter. For the ongoing quarter, the company projects revenues between $525 million and $575 million (mid-point (550 million). It forecasts adjusted earnings per share in the range of $1.98 to $2.18 (mid-point $2.09). The Zacks Consensus Estimate for the current-quarter revenues and earnings is pegged at $554.3 million and $2.06 per share, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Check Point has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Check Point has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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