Product Demand Aids Check Point 1Q - Analyst Blog
April 25 2012 - 9:15AM
Zacks
Check Point Software
Technologies Ltd. (CHKP) exited first quarter 2012 with
flying colors. Adjusted earnings of 69 cents per share marginally
surpassed the Zacks Consensus Estimate of 68 cents. The adjusted
earnings per share exclude one-time items, but include stock-based
compensation expense. Check Point witnessed strong network security
product sales across all geographical regions.
Shares closed at $60.76, down 5.14%
from the previous day’s price. Despite a modest beat, the share
price deceleration indicates investors’ unhappiness about a weak
revenue and earnings guidance for the upcoming quarter. Investor
sentiments were also hurt by the company’s decision to leave the
fiscal outlook unchanged.
Revenue
Check Point reported revenue of
$313.1 million in the first quarter, up 11.3% from $281.3 million
in the year-ago period. The quarter’s result was at the higher end
of company’s guidance range of $305.0–$315.0 million and was
roughly in line with the Zacks Consensus Estimate of $313.0
million. The improvement can be attributed to a 4.7% year-over-year
growth in Product and Licenses revenue. Moreover, Check Point
witnessed a total 15.3% year-over-year growth in its Software
Updates, Maintenance and Services revenues.
Overall, revenue improvement was
driven by the growing demand for Check Point’s network security
appliances and annuity software blades, as well as new product
launches. The growth in demand was largely due to a general
customer pattern of upgrading security levels. Management also
reported strong performance regarding the number of large deals,
which doubled from the year-ago quarter.
Operating
Results
Reported gross profit increased 3.7%
year over year to $274.6 million. Gross margin increased 180 basis
points from the year-ago quarter to 87.7%. Cost control measures
led to improved margin expansion.
Operating income came in at $172.9
million, up 22.3% year over year. Operating margin increased 500
basis points year over year to 55.2%. The improvement in operating
results was driven by strong revenue growth that blew past the 1.6%
rise in operating expenses. Cost control was also noticed with the
year-over-year drop in R&D expenses.
The quarter’s GAAP net income was
$143.6 million or 68 cents per share, up from $122.1 million or 57
cents in the comparable quarter last year. Excluding special items
but including stock-based compensation expense, non-GAAP net income
was $147.5 million or 69 cents a share compared with $130.2 million
or 61 cents in the year-earlier quarter. Apart from cost control
measures, strength in dollar value also supported the profit
boost.
Balance Sheet & Cash
Flow
Check Point exited the quarter with
cash, cash equivalents and marketable securities of approximately
$1.40 billion, up from $1.36 billion in the prior quarter. Trade
receivables were $243.4 million. Cash flow from operations was
$275.3 million, up from $173.2 million in the previous quarter.
Capital expenditure increased to $2.42 million from $1.72 million
in the prior quarter. During the quarter, Check Point repurchased
1.29 million shares for a total consideration of $75.0 million.
Second Quarter & Fiscal
2012 Outlook
Management sees revenue in a range
of $324.0 million to $336.0 million, and earnings (excluding
one-time items) in the range of 74 cents to 77 cents per share. For
fiscal 2012, Check Point still expects revenue of $1.345–$1.395
billion and earnings per share ex-items of $3.10–$3.20. The Zacks
Consensus Estimates for the second quarter and fiscal 2012 are
pegged at 72 cents and $3.01, respectively. GAAP earnings per share
would be 7 cents less than the non-GAAP figure.
Our Take
Check Point delivered an impressive
first quarter, beating the Zacks Consensus Estimate with respect to
bottom line and matching with respect to top line. We think that
investor sentiment will be in Check Point’s favor as shareholders
remain encouraged by its market share gains from the tech giant
Cisco Systems Inc. (CSCO) and Juniper
Networks Inc. (JNPR). Check Point continues to benefit
from strength at the high end of the market, and increased demand
for its blade solutions. Moreover, the company’s continuous product
launches are encouraging. Considering all these, we believe that
the second quarter and fiscal guidance are quite conservative.
However, limited margin expansion
potential (over dependence on indirect sales model), an uncertain
economic environment competitive pressures and Check Point’s
significant European exposure are concerns.
Currently, Check Point has a Zacks
#3 Rank, implying a short-term Hold recommendation.
CHECK PT SOFTW (CHKP): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
JUNIPER NETWRKS (JNPR): Free Stock Analysis Report
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