A slowdown in growth in spending on security and a weaker demand environment - these are the trends identified by Deutsche Bank, leading it to downgrade its rating for Check Point Software Technologies Ltd. (Nasdaq: CHKP) from "Buy" to "Hold". Analysts Karl Keirstead and Imtiaz Koujalgi write that, at Gartner’s annual security conference in the US, "We picked up more data points suggesting that enterprise security spending growth is slowing, with the tone incrementally worse in the banking vertical."
According to the analysts, about 30% of Check Point's revenue comes from the financial sector. "Assuming that this demand backdrop persists into the second half of 2016 and that Check Point's growth slows in the second quarter of 2016 despite the big sales investments, we’re finding it harder to articulate a bull case that can carry the stock into the mid-$90s," they write, and according downgrade their rating and cut their price target from $95 to $90.
In the last two sessions on Nasdaq, Check Point's share price slipped by 3.7% following the downgrade, and at its current level of $81.20 Deutsche Bank's price target represents upside of 10.9%.
Check Point, co-founded and managed by Gil Shwed, provides Internet and data security solutions, and has a market cap of $13.9 billion.
The analysts write that "Check Point's compelling valuation offers downside protection", and also that "We still believe that Check Point's customer base is loyal and that the number of large Check Point displacements by Palo Alto Networks (PANW) and other rivals is small," but they continue, "However, the demand tone from our checks is still getting worse, not better. In the banking vertical, we’re hearing that the number of large deals is down, sales cycles are longer and a larger portion of new spend is going to hiring security personnel (to better utilize all the products acquired) and for managed services. The impact of the cloud/AWS embrace is still small, but we’re hearing far more about “Cloud security” (this was barely mentioned last year), presenting some risk to incumbents."
The analysts add that "If growth slows, it raises the chance that CHKP could acquire or invest more aggressively to fill out its product suite, impacting margins."
According to Thomson/First Call, of 33 analysts that cover Check Point, 15 have positive ratings, 14 are neutral, and 4 are negative.
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2016
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