Check Point: A Safe Bet To Ride The Rising Cyber-Security Trend

May. 9.13 | About: Check Point (CHKP)

Check Point Software Technologies Ltd. (NASDAQ:CHKP) is the worldwide leader in securing the Internet, providing customers with uncompromised protection against all types of threats to reduce security complexity and lower total cost of ownership. Check Point offers its customers a portfolio of network security, data security and management solutions.

Innovative Security Solutions

Check Point continues to deliver innovative security solutions to protect both enterprises and consumers. With the recent release of new 600 Appliances, Check Point helps the small businesses to implement comprehensive security to ensure employees and data are protected at all times. Earlier in April, Check Point also launched its new 1100 Appliances to provide enterprise-class security in a compact desktop package, which is perfect for branch and remote offices.

Fundamentally, Check Point continues to benefit from the increasing demand to fight cybercrimes. Check Point has higher revenue growth (3 year average) of 13.3 as compared to the industry average of 6.4 for the industry of application software. Check Point has much higher margins as compared to the averages. Check Point also generates solid ROA of 14.0 and ROE of 18.9 as compared to the averages of 8.2 and 15.5. Check Point has a strong cash position with $1.39B total cash and zero total debt. Check Point also generates over $905M of operating cash flow with a levered free cash flow of $660M, ttm. From the valuation perspective, Check Point's P/E of 15.8 is well below the industry average of 57.8. Check Point's Forward P/E of 12.4 is also lower than the S&P 500's average of 14.6.

Checking out Check Point

A quick comparison will be reviewed for Check Point and its peers in the industry of security software and services, including Fortinet Inc. (NASDAQ:FTNT) and Juniper Networks Inc. (NYSE:JNPR). Fortinet provides integrated protection against security threats and addresses the fundamental problems of an increasing bandwidth-intensive network environment and a more sophisticated IT threat landscape. Fortinet, with a market cap of $2.92, continues to enjoy a higher revenue growth as compared to the industry average. On the other hand, Juniper Networks, with a market cap of $8.79B, provides its customers with network infrastructure solutions. Juniper is well positioned to continue its long-term growth by expanding into enterprise switch industry while continues to enjoy its strong presence in the carrier router market. These three companies will be compared for their revenues, quarterly EPS, profit margin, ROE, and P/E ratios.

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Source: YCharts.com

While both Check Point and Fortinet's revenue have been growing steadily since early 2009, Juniper Networks' revenue has peaked at the end of 2010.

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Source: YCharts.com

Despite the growing revenue, Fortinet's EPS has peaked at the end of 2010, whereas Juniper Networks' EPS has topped at the end of 2010. On the other hand, Check Point's EPS continues to be on the long-term uptrend since 2009.

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Source: YCharts.com

Both Fortinet and Juniper Networks' ROE have declined since early 2011. On the other hand, Check Point's ROE remains consistent and currently has the highest ROE of 18.88% among 3 companies.

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Source: YCharts.com

Fortinet's profit margin has topped at the end of 2009 while the profit margin has been fluctuating below 20% for Juniper Networks. Check Point's profit margin has increased steadily from mid-2009 to the end of 2012 and remains much higher as compared to Fortinet and Juniper Networks.

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Source: YCharts.com

Comparing to Fortinet and Juniper Networks, Check Point's P/E remains relatively lower and fluctuates within a narrower range. Check Point currently has the lowest P/E of 15.84 as compared to Fortinet's 48.09 and Juniper Networks' 34.17.

Bottom Line

With continuous revenue and EPS growth, along with high ROE and profit margin, Check Point is much undervalued at current valuation. Supported with a solid balance sheet and zero total debt, Check Point also offers a strong, inexpensive cash flow (P/FCF of 10.68). Backed with its solid fundamentals and steady growth, Check Point remains a safe bet to fight against increasing cybercrimes.

Disclaimer: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CHKP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.