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Oscar Gruss's talented analyst Ehud Eisenstein has just reiterated his "Hold" rating for Check Point Software Technologies Ltd. (NASDAQ:CHKP). The review came out on April 26, when the stock price stood at $24. Eisenstein begins by saying that Check Point has beaten both his own forecast and the consensus estimate. The company's sales for the first quarter totaled $164 million, up 2.4% on the fourth quarter and by 23% on the corresponding quarter of 2006.

I remind you that one of the reasons for the fall in the stock last year was the analysts' consensus forecast, which claimed that the company was not growing, and that they could not see any growth engines. Twenty-three percent represents significant growth, but who remembers last year? The net profit fell, if you calculate it according to GAAP, or it rose handsomely if you use non-GAAP. Check Point's management says that year-on-year growth will continue to be just over 23% in the second quarter, and that it will reach 23% for 2007 as a whole. Eisenstein notes that the company's balance sheet is now stronger and that the company's traditional businesses are now back on track.

What Eisenstein is saying, in other words, is that the company is now back on track and that we will now have to wait and see how it progresses following the two acquisitions it made during the last twelve months. So if that's the case, why not buy this stock? Supposing the management has been right up to this point, and assuming that Check Point does indeed expand its areas of activity, what logic would there be in me staying in "Hold"? Eisenstein is apprehensive about the company's performance capacity. Check Point, he explains, recently underwent a restructuring with the aim of increasing sales and stemming the fall in sales of its brand product. The company strengthened its global sales operations, and it has unveiled new products, as it attempts to penetrate the data protection field (through its acquisition of Pointsec Mobile Technologies).

Eisenstein says he believes that the key factor that will continue to drive the recent momentum in sales is the ability to execute. The integration of Pointsec and the development of new sales channels still represent a challenge for the company. Eisenstein feels that the dearth in acquisition and merger options on the one hand, and the maturing of its key brand on the other, will continue to put pressure on Check Point's performance level and could limit the management's forecast to 2007. Two more factors that he notes are the company's dependence on several large customers, especially Nokia, and increasing competition.

This, more or less, is the opinion of most of the analysts currently covering Check Point. To be honest, I have difficulty understanding why that should be the case. If you read the reviews written by Eisenstein and others, and look at Check Point over last year, you will get a pretty good picture which all the analysts are well aware of too. If that's the case, then this review can be summed up by saying that Eisenstein has doubts about Gil Shwed's guidance. He fears that Shwed will not meet his program for 2007, and reading between the lines, I can even detect a hint of a lack of faith in the company's guidance. For the past year and more, the overwhelming majority of analysts, Eisenstein included, have advised investors not to jump on Shwed's bandwagon. Those people who heeded their advice and steered clear of Check Point, lost out on the extremely high return that the stock ultimately delivered.

It looks to me as though the analysts' fears center more around a lack of confidence in the management's ability than on business facts, and what is astounding is that this management has actually met all the goals that the analysts previously hoped it would reach. I still believe that it's very hard to find merchandise like this that is so worth its stock market price.

Disclosure: The author invests in various equities and may have a personal holding in the stock of companies named.

CHKP 1-yr chart:

CHKP

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

Source: Why Are Analysts Lukewarm on Check Point?