Citi and Oscar Gruss & Sons have reiterated their "Buy" recommendations for Check Point Software Technologies Ltd. (Nasdaq: CHKP) in the wake of the company's financial report for the fourth quarter of 2007 and the year as a whole. Citi also raised its target price for the share from $28 to $29, a 43% premium on its price of $20.19 at the date of the report. Oscar Russ reiterated its target price of $31 for the share. Check Point rose 1.4% yesterday to $21.40.

Citi analyst John Reilly Walsh says, "We recommend investors add or build positions in Check Point because about 55% of the company's business comes from outside the Americas, the company's network and data security offerings should remain relative high priorities within IT budgets in 2008, about 60% of the company's business comes from predictable subscription, maintenance and services revenue, and the company has compelling valuation."

Walsh notes that Check Point posted $207 million revenue in the fourth quarter of 2007, up 29% on the corresponding quarter, more than Cit's forecast of $205 million, and in line with Check Point's guidance of $196-205 million. Walsh also notes that Check Point's earnings per share of $0.46 beat the bank's forecast of $0.45, and was also in line with the guidance of $0.42-0.46. He says that the upside compared with Citi's forecast was "primarily due to lower share count and other income. Check Point experiences strength in core network security business, including appliances." The company's 19 deals that were larger than $1 million was the largest number in the company's history.

Walsh adds, "We think that Check Point's guidance will eventually be well received by investors once the extreme market volatility subsides." The revenue guidance of $780-820 million for 2008 reflects 7-12% growth, and the pro forma earnings per share guidance of $1.71-1.81 reflects 7.5-14% growth. Citi predicts that the company's pro forma earnings per share will rise by 9% to $1.73 and that its revenue will grow 8% to $791 million. Citi said that its recommendation is based on cash-adjusted earnings per share of 41.59 plus a cash/share of $6.60 at the end of 2008.

Oscar Gruss analyst Ehud Eisenstein says, "Check Point ended 2007 on a high note as the fourth quarter number topped both our, and the Street's, estimates. Strong guidance for the first quarter 2008 and for the year (above consensus) set the bar for another growth year as Check Point is now benefiting from a new product and channel initiatives.

"The better than expected top line only partially passed on to the bottom line due to a $10 million sequential increase in operating expenditures, which we assign to the strong Israeli currency compared with the US dollar."

Eisenstein noted, "Management provided better than expected guidance for the first quarter 2008 and for the year 'despite increasing concerns for a global economy slowdown, which they (management) are 'not seeing much of'." Check Point predicts $184-193 million revenue for the first quarter, compared with the market consensus of $186 million, reflecting 15% growth at the mid-point. The company's non-GAAP earnings per share guidance of $0.39-42 is in line with the market consensus of $0.40. He adds that Check Point's revenue guidance of $78-820 million for the year is also above the market consensus.

Eisentein predicts that Check Point will post a non-GAAP earnings per share of $0.41 on $187 million for the first quarter ($1 million more than his previous forecast), and non-GAAP earnings per share of $1.75 on $803 million for the year. He also notes that the company's deferred income increased by $69.5 million at the end of 2006 to $237.4 at the end of 2007 thanks to strong seasonal fourth quarter growth in the appliances business.

Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2008

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