Check Point (CHKP) Up 3.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Check Point Software (CHKP). Shares have added about 3.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Check Point due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Check Point Q3 Earnings Top Estimates

Check Point reported third-quarter 2019 results, wherein the bottom line beat and the top line matched the Zacks Consensus Estimate.

The company’s non-GAAP earnings per share of $1.44 beat the consensus estimate of $1.40. The figure matched the top-end of the company’s guidance of $1.36-$1.44 and climbed 4.3% year over year, driven mainly by higher revenues and lower share count.

Revenues were $491 million, up 4% year over year. The figure came within the company’s guidance of $480-$500 million.

Growth in security subscriptions revenues, including advanced threat prevention and CloudGuard suite of products boosted the top line. This was driven by increased adoption of Check Point’s cloud solutions.

Quarter Details

Security subscription revenues were $154 million, increasing 13% year over year, driven by strong demand for its next generation threat extraction and protection, CloudGuard and Infinity solutions, and SandBlast zero-day advanced threat prevention technologies. However, revenues of $118.3 million from Products and licenses fell 2.3%.

Total revenues from product and security subscriptions totaled $272 million, growing 6% year over year.

Software updates and maintenance revenues increased to $219 million, up 3%.

As of Sep 30, 2019, deferred revenues were $1.24 billion, up 8% year over year, reflecting strength in security subscription and support.

Region wise, the Americas generated 46% of total revenues; Europe, Middle East and Africa accounted for 42% and the Asia Pacific accounted for 12%.

During the quarter, the company focused on IT modernization. The cloud business grew significantly. Also, the Maestro Orchestrator witnessed solid traction.

Check Point added CloudGuard Connect and CloudGuard Edge solutions to its portfolio of cloud offerings.

Notably, a potential customer, while testing the CloudGuard product, successfully detected and prevented a command-and-control malware that could have leaked confidential information.

The company continued to witness strong traction of its high-end 16000 and 26000 security appliances, which are optimized for Gen 5 security operations. It also launched the 1500 series of appliances, which delivers between 456 and 660 megabits of threat prevention performance.

The North America region witnessed a healthy growth rate. Check Point also significantly increased its marketing activities in the region during the quarter. Moreover, management is optimistic about its new high-level appointment of a new president for the region, Chris Scanlan.

Operating Results

Non-GAAP operating income for the quarter came in at $246 million, falling 1.6% year over year. Non-GAAP operating margin contracted 310 basis points to 50%, as a result of increased investments in sales and marketing efforts by the company.

Non-GAAP net income for the quarter was $216.7 million, down from $219.3 million in the year-earlier quarter.

Balance Sheet & Other Financial Details

Check Point exited the third quarter with cash and cash equivalents, marketable securities and short-term deposits of $4.1 million compared with $1.6 billion in the previous quarter.

The company generated cash worth $244 million from operational activities, up from $233 million in the second quarter.

It repurchased approximately 2.9 million shares for about $323 million in the third quarter.

Outlook

The company intends to continue shifting its revenues from products to subscriptions and Infinity.

Furthermore, for the fourth quarter, revenues are expected to be between $527 million and $557 million, and non-GAAP earnings in the $1.93-$2.04 range. Tax rate for the fourth quarter is expected to be around 0%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Check Point has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Check Point has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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