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Why Is Check Point (CHKP) Down 8.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Check Point Software (CHKP). Shares have lost about 8.2% 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 Q4 Earnings & Revenues Beat Estimates

Check Point Software Technologies reported fourth-quarter 2020 results, wherein both top and bottom lines beat the Zacks Consensus Estimate. The company’s non-GAAP earnings per share of $2.17 beat the consensus mark of $2.11. The figure also climbed 7% year over year.

Revenues for the reported quarter came in at $564 million, up 4% year on year. Moreover, the figure exceeded the Zacks Consensus Estimate of $555.1 million. Growth in SaaS and IaaS cloud solutions drove the top line. In addition, the work-from-home-related solutions — Mobile Access and Sandblast Agent — continued to witness strong traction.

Quarter Details

Subscription revenues came in at $180 million, increasing 10% year over year, on solid demand for its advanced solutions, primarily CloudGuard, Sandblast Zero-day threat prevention and Infinity solutions. During the fourth quarter, the company secured several Infinity deals in various industries, including government, telecommunication and industrial.

Revenues of $161 million from products and licenses inched up 1.7%. 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 $340 million, up 6% year on year.

Software update and maintenance revenues increased to $224 million from the $222 million reported in the year-ago quarter.

As of Dec 31, 2021, deferred revenues were $1.48 billion, up 7% year over year, reflecting strength in security subscription.

Region wise, the Americas generated 43% of total revenues; Europe, Middle East and Africa accounted for 45%; and the Asia Pacific contributed 12%.

Non-GAAP operating income for the reported quarter came in at $285 million, up 1.8% year over year. Non-GAAP operating margin remained flat at 51%.

Balance Sheet & Other Financial Details

Check Point exited the fourth quarter with cash and cash equivalents, marketable securities and short-term deposits of $4 billion compared with the previous quarter’s $3.9 billion.

The company generated cash worth $293 million from operational activities during the fourth quarter and $1.15 billion in full-year 2020.

It repurchased 2.7 million shares for about $323 million during the December-end quarter. During full-year 2020, the company bought back 11.4 million shares for $1.3 billion.

Outlook

Check Point has issued the guidance for first-quarter and full-year 2021. For the ongoing quarter, the company projects revenues between $485 million and $515 million (mid-point $500 million). It forecasts adjusted earnings per share in the range of $1.45 to $1.55 (mid-point $1.50).

For full-year 2021, Check Point estimates revenues to be in the range of $2.08-$2.18 billion and adjusted earnings per share between $6.45 and $6.85.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Check Point has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Check Point has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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