Goldman Sachs said today it was unlikely that Check Point would meet its guidance for the second quarter. The investment bank also cut its revenue and profit estimates for the Internet security software company, citing a sluggish sales environment and reluctance by customers to close large deals.
Analyst Elan Zivotofsky said, “We think the second quarter was tough to close and it is unlikely that Check Point saw 5-10% sequential growth (guidance). Moreover, we believe the third quarter will likely be flat to slightly down. We are now modeling a return to sequential growth in the fourth quarter.”
Zivotofsky argues that his end of quarter checks for Check Point indicate a solid pipeline and healthy business, but also point to long sales cycles and customers that are very price sensitive. As a result, large deals are not closing or are being implemented over extended periods.
Goldman Sachs’s new second quarter revenue estimate is $103 million, compared with its previous target of $107 million. The new forecast is significantly under the low end of Check Point’s own guidance of $110 million.
Zivotofsky also cut his forecasts for 2002 and 2003. For year 2002, he now forecasts profit of $0.94 per share on revenue of $414 million, down from his previous estimates of $1.03 per share and $445 million. The analyst also cut his forecasts for next year to a profit of $1.10 per share on revenue of $485 million, from $1.22 per share and $532 million.
Despite the lower outlook for Check Point, Goldman Sachs has reiterated its “Recommended List” rating for the share, based on the company’s strong cash flow, solid positioning, and valuation.
“Currently trading at 14 times and 12 times our new 2002 and 2003 estimates - now well below consensus - we believe Check Point's valuation is attractive for longer term investors. On May 6th, we published a report in which our analysis showed that Check Point would likely find a bottom around $11-12, even in a worst case scenario. We stand by that view,” the report noted.
“We think the risk/reward is compelling even with the near term risk of a pre-announcement and our now lower than consensus estimates. Nonetheless, we might wait through the first week of July in case of pre-announcement, even if downside is limited from here,” Zivotofsky concluded.
Shares of Check Point closed at $13.56 on Friday on the Nasdaq Market. The shares have lost 50% of their value since April 3.
Published by Globes [online] - www.globes.co.il - on 1 July, 2002