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Check Point Software Technologies (CHKP) is scheduled to announce its third quarter 2011 results on October 18, 2011 before market opens and we see a complete dearth of estimate revisions at this point.

Second Quarter Overview

Check Point delivered a decent second quarter, with earnings per share of 64 cents beating the Zacks Consensus Estimates by a penny. The quarter’s results increased 18.5% from a year ago. Revenue saw a 15.1% year-over-year increase, aided by strong performances by the Product & Licenses as well as Software Updates, Maintenance and Services segments. However, the overall improvement was mainly aided by the growing demand for its security products.

Check Point has earned a reputation among customers and analysts for providing simple, all-in-one security solutions that provide the highest level of protection to small and mid-sized businesses and remote/branch offices. Hence, we believe new product ramp up will better serve the growing demand for Check Point’s security products.

Management Guidance

Check Point expects revenue of between $300.0 million and $308.0 million and non-GAAP EPS in the range of 67 to 70 cents.

For 2011, revenue is forecast at between $1.225 billion and $1.250 billion (raised from the previous guidance range of $1.185 billion and $1.225 billion). Check Point expects non-GAAP EPS in the range of $2.77 to $2.84 (previously $2.65–$2.75).

Agreement of Analysts

Given the company’s broader suite of offerings and its steadily growing annuity blade content, growing network security spending and continuous share gains, some analysts believe its projected growth rate should exceed the guidance. Hence, most of the analysts raised their revenue estimates for FY11 and FY12 based on the company’s ongoing appliance upgrade adoption cycle and momentum on the software blade architecture front.

The analysts are also confident about Check Point’s market share gain versus tech giant Cisco Systems Inc. (CSCO) based on strong demand for its high-end (Power-1) and mid-range (UTM-1) appliances. The analysts are also optimistic about the improved enterprise information technology spending environment.

Out of the 11 and 12 analysts providing estimates for the third quarter and fiscal 2011, respectively, none revised their estimates upward in the past 30 days. Also, there was no estimate revision for fiscal 2012.

The limited number of changes to estimates point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, most of the analysts are sticking to the estimates they provided post second quarter earnings.

Magnitude of Estimate Revisions

There was no change to the Zacks Consensus Estimates for the third quarter and fiscal 2011 over the past 30 days. However, the third quarter estimate moved up a penny in the past ninety days. Also, the Zacks Consensus Estimate for fiscal 2011 increased 4 cents over the past ninety days. The reason for the uptick could be the growing demand for Check Point’s security products. The Zacks Consensus Estimate for fiscal 2012 witnessed a significant jump of 8 cents since the third quarter results.

Recommendation

We remain encouraged by the steady traction of Software Blade architecture (security solution) that will likely lead to a solid second quarter. We believe this would result in considerable upside to the shares.

In order to address the growing security needs of customers, attain operational excellence and expand market share, Check Point continues to invest in R&D. Apart from security, Check Point is also focusing on the mobile Internet and cloud computing space. According to the analysts, these strategic initiatives to expand its operational footprint from its core network firewall market to adjacent network security will not only enhance its market position, but will also provide the company with a competitive advantage over its peers Cisco Systems (CSCO) and Juniper Networks Inc. (JNPR). But these investments could rationalize its margin performance in the near term.

However, increased competition from Juniper and Microsoft Corp. (MSFT) are concerns.

Currently, CheckPoint has a Zacks Rank of #3 implying a short-term Hold recommendation.

Source: Check Point: Earnings Preview