Accelerating cybersecurity threats across enterprises due to the ongoing wave of digital transformation amid the coronavirus crisis has bolstered demand for Check Point Software Technologies’ (CHKP) subscription-based cybersecurity solutions. The pandemic-induced hybrid work environment has highlighted the need for remote working cloud solutions and integrated security that seamlessly expands on-demand to hyper-scale capacity.

As a result, the stock has immensely benefited from the tech-rally and has returned 8% over the past three months. Analysts anticipated the company to report strong earnings in the last quarterly report because of the continued growth in demand for its services. Here is why CHKP is worth a watch:

Fourth-Quarter Results

For the fourth quarter ended December 2020, CHKP’s revenues increased 4% year-over-year to $564 million, driven by improvement across all focus areas including cloud, network, and remote access security with subscriptions revenue growth of 10%. Cash flow from operations was $293 million compared to $246 million in the prior-year quarter. Moreover, adjusted EPS came in at $2.17, rising 7% compared to the year-ago value.

Latest Movement to Ensure Security

CHKP has recently partnered with OMNIQ Corporation to offer its ZoneAlarm security software in collaboration with OMNIQ’s suite of supply-chain mobility solutions. Apart from providing data protection against cyberattacks, CHKP will provide a robust antivirus and firewall, anti-ransomware, anti-phishing capabilities, and multi-device compatibility for Android and iOS devices will ensure user safety.

In December 2020, CHKP also announced that it has been chosen by the NHS National Services Scotland, the publicly funded healthcare service in Scotland, to secure and streamline the management of its public cloud data, and provide complete threat prevention for vital public services such as Scotland’s ‘Test & Protect’ service and support its COVID-19 vaccine management systems.

Enhanced Need for Cyber Security

In December, Check Point conducted a global survey of over 600 IT security professionals and concluded that securing remote workers will be a leading priority and challenge for organizations over the next two years, as major corporates have witnessed increased productivity among their employees, and thus, believe the workplace will not return to pre-pandemic norms anytime soon.

Inorganic Growth Strategy

CHKP is transiting from its large legacy businesses to cloud cybersecurity by creating synergies via acquisitions. For instance, it acquired the cloud cybersecurity start-up Odo Security in September to secure and simplify remote access to enterprise applications.

As of December 2020, the company managed to accumulate $4 billion of cash, marketable securities, and short-term deposits, with no significant debt. This will certainly allow the company to withstand any potentially prolonged recession and further aid acquisitions this year.

Expected Growth in Financials

Analysts expect CHKP’s current year revenue and EPS to increase 2.9% and 2.8%, respectively. Moreover, the company’s EPS is expected to grow at a rate of 6.2% per annum over the next five years.

POWR Ratings Show Odds are in Favor  

CHKP has an overall rating of B which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock based on a total of eight different categories. Out of these categories, CHKP has a Value Grade of B, which is evident from the stock’s lower-than-industry forward P/E ratio (19.91 vs 27.16).

CHKP also has a Quality Grade of B. Among other favorable qualitative aspects, the company’s trailing-twelve-month gross profit margin of 89.46% compares favorably with the industry average of 47.82%.

It is ranked #4 of 25 stocks in the Software – Security industry.

Beyond what we stated above, we also have given CHKP grades for Growth, Momentum, Stability, and Sentiment. Get all the CHKP ratings here.

There are several other stocks in the Software – Security industry with an overall POWR Rating of A or B. Click here to see them.

Bottom Line

A favorable environment and strong secular tailwinds are fueling the company’s growth. Organizations across the globe are shedding outdated systems and accelerating their move to modern cloud-native technologies to meet the demands of today’s threat landscape. As more companies permanently adopt the remote work culture, cybersecurity will be of uttermost importance to them. Given this favorable backdrop, CHKP looks like a long-term winner as it steadily innovates its endpoint protection services.

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CHKP shares were trading at $123.64 per share on Wednesday afternoon, down $10.46 (-7.80%). Year-to-date, CHKP has declined -6.97%, versus a 2.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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