Check Point Earnings: Growth Still Hampered by Delayed Refresh Cycle; Shares Undervalued

Narrow-moat Check Point Software Technologies CHKP reported third-quarter numbers that were slightly above the FactSet consensus and company guidance. Revenue was above the midpoint and earnings per share came in at the very top end of the guidance ranges. Overall, total revenue growth remained modest at 3% as customers continued to delay refreshing their firewall appliances, which resulted in product and license revenue declining 14%. We are updating our model for the latest developments but do not anticipate a material change to our $150 fair value estimate. At current levels, the shares look undervalued.

Fourth-quarter guidance is calling for revenue of $636 million-$686 million and non-GAAP EPS of $2.35-$2.55. For the full year, management narrowed the revenue guidance range to $2.387 billion-$2.437 billion and lifted the non-GAAP EPS range to $8.20-$8.40. Prior to the quarter, our 2023 forecast was for revenue of $2.4 billion and non-GAAP EPS of $7.73.

We are optimistic on Check Point’s Infinity cybersecurity platform. Performance remained robust in the quarter with continued double-digit growth. Infinity sales now account for more than 10% of group sales. Security subscription growth was also healthy at 15%, the highest since 2017. While product sales were down due to the aforementioned delay in the firewall appliance refreshment cycle, the company indicated that the environment turned much more positive in the third quarter.

The company made three acquisitions in the quarter. Notably, Check Point acquired Perimeter 81, which represents its entrance into the secure access service edge market, which we think will eventually be an important component of its Infinity cybersecurity platform.