Analysts from Goldman Sachs and Merrill Lynch have cut their estimates on Check Point (Nasdaq: CHKP), a day after the Internet security software company reported second quarter results with guidance that came in below Wall Street consensus expectations.
Goldman Sachs analyst Sarah Friar reiterated an “Underperform” rating on the stock, while Merrill’s Ed Maguire was more sanguine, keeping his “Neutral” rating.
According to Friar, Check Point’s second quarter results were “somewhat disappointing”, while visibility remained low. The analyst said she was disappointed with the company’s license revenue (an indicator of new products being sold), which at $55 million was down 6% in comparison with the preceding quarter. Check Point was continuing to show weakness in attracting new customers or developing new products at a meaningful rate, she added.
Friar cut her third quarter earnings forecast to $0.23 per share on revenue of $104.5 million, from an earlier forecast of $0.25 per share on revenue of $106 million. She also trimmed her profit forecast for 2003 to $0.96 from $1, and initiated 2004 estimates for $1.01 in EPS on revenue of $461.5 million.
Merrill Lynch’s Ed Maguire said Check Point’s results suggested the company continued to be challenged by the adverse IT spending environment. “While the company met our numbers and the Street’s, we think investors will react negatively to the tempered outlook,” he said.
Maguire also adjusted his estimates to reflect the continued challenges in IT spending as well as an increase in the tax rate from the second half of 2003, from 18% to 20%.
“We are reducing our 2003 estimates to revenues of $429.7 million from $434.6 million previously. We are lowering 2003 EPS to $0.95 from our prior estimate of $0.97. For 2004, we are reducing our estimated revenues to $455.6 million from $464.3 million, and reducing EPS to $0.98 from $1.02,” Maguire stated.
The Merrill Lynch analyst noted that Check Point’s management was planning a number of new product announcements later in the year, which could provide the key to renewed revenue growth. But he concluded by saying that he preferred to remain on the sidelines, pending “greater insight into the character and implications of the company’s forward product strategy”.
Published by Globes [online] - www.globes.co.il - on 22 July, 2003