Do Check Point's New Options Signal a Turnaround?

Recently, I have sensed some interesting activity in Check Point's (Nasdaq: CHKP) stock, as seen in the increase in trading volumes, exceptionally brisk trading in Call Options, and in the stock price, which has climbed 17% since the end of July. Last week it crossed the $20 level - the first time it has done so since May.

It doesn’t look to me like Check Point is about to be sold in the near future, as analysts and the financial press have been claiming, otherwise the management would not have bothered several days ago to offer employees the substitute four-year incentive program. The plan is designed to replace only those options allocated since January 2004, some of which have a strike price that is much higher than the stock’s current price.

Although it has remained untainted by the recent wave of options scandals, Check Point has apparently decided to abandon the options incentive scheme, which as is known, has corrupted a good many companies on Wall Street. It is now offering employees and managers who are not board members the opportunity to exchange the current value of the options they own for shares that will be allocated to them free of charge over a four-year period. The quantity of shares to be allocated will be calculated according to the value of $19.20 per share, the price on the day the decision was approved.

27 million options have been allocated to Check Point managers and employees since January 2004, of which 20 million were distributed among senior management: CEO and chairman Gil Shwed received 10.75 million options, while vice chairman and senior VP Marius Nacht received 4.35 million and vice chairman Jerry Ungerman received 2.65 million. CFO and executive VP Eyal Desheh also received options, but the new program is not meant for board members, thus Desheh, as the only senior manager who is not a board member, may convert his options under the terms of the new plan. Incidentally, the two million options allocated to Shwed on July 31, 2006 already bear a profit on paper of $6 million.

The million dollar question that investors will now be asking is whether now is the time to return to Check Point’s stock, which has produced nothing but disappointment in recent years, after the company's growth ground to a halt. I tend to believe that the new options plan has been put into effect now, at a price of $19.20, because the management believes that this is the bottom price, and that it apparently has a plan to generate renewed growth in 2007, at the center of which will be a number of aggressive acquisitions.

Having said this, we will not know until next week whether Check Point’s third quarter has gone smoothly. The fog surrounding this quarter is pretty dense at present, since this is the first time that I can recall since Check Point went public, that its managers were absent from all the investor conferences held during September.

CHKP 1-yr Chart

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