Emerging AI Partnerships And Cyber Advancements Will Define The Next Security Cycle

Key Takeaways

• Quantum Force appliances and the Infinity platform drive strong revenue growth, with potential for sustained growth through customer retention and cross-selling.
  
• Strategic AI integration and expansion initiatives are set to enhance user experiences and drive innovation-led revenue growth.
  
• Competitive pressures and reliance on Taiwan could strain margins, while strategic shifts may disrupt execution amidst macroeconomic uncertainty and tariff implications.

Catalysts

Develops, markets, and supports a range of products and services for IT security worldwide.

• Check Point's Quantum Force appliances have driven strong demand, resulting in significant product and license revenue growth. This trend, expected to continue with a robust pipeline, indicates potential for sustained revenue and earnings growth.
  
• The Infinity platform continues to gain traction, with strong double-digit revenue growth and increased customer adoption, now accounting for over 15% of total revenue. This supports expectations for revenue growth through enhanced customer retention and cross-selling opportunities.
  
• Strategic focus on SASE and AI integration, such as embedding Check Point security engines that use AI for enhanced user experience and security, suggests future revenue growth as enterprises seek comprehensive solutions for modern hybrid workforces.
  
• Expansion initiatives, like the new R&D center in India, aim to improve user and cyber practitioner experiences, potentially impacting revenue and net margins through innovation-driven revenue streams and cost management.
  
• The continued investment in partnerships and key talent, such as the integration of Gil Friedrich's division and appointing Yonatan Zanger as CTO, positions Check Point to capitalize on AI and hybrid workforce security trends, potentially driving revenue and EPS growth.

Check Point Software Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Check Point Software Technologies's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 32.5% today to 31.5% in 3 years time.
• Analysts expect earnings to reach $989.0 million (and earnings per share of $10.1) by about September 2028, up from $858.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $865.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.6x on those 2028 earnings, up from 24.6x today. This future PE is lower than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to decline by 3.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.63%, as per the Simply Wall St company report.

Check Point Software Technologies Future Earnings Per Share Growth

Risks

• The macroeconomic environment presents challenges such as potential volatility and uncertainty, which could lead to deals being delayed or slipping into subsequent quarters, impacting near-term revenue projections.
  
• The company faces a competitive landscape in emerging technologies like SASE and AI, potentially leading to increased spending on research and development and marketing, which could strain net margins.
  
• The company is dealing with the implications of international tariffs and manufacturing risks, particularly with their reliance on Taiwan for production, which could affect cost of goods sold and gross margins.
  
• The focus on refresh cycles in the firewall market, while currently driving growth, may not sustain long-term revenue increases if the overall market does not grow substantially as customers eventually sweat assets.
  
• The transition regarding their CNAPP strategy and reliance on partnerships, such as with Wiz, suggests a shift in priority that could temporarily disrupt execution and revenue from this segment.

Valuation

• The analysts have a consensus price target of $223.054 for Check Point Software Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $285.0, and the most bearish reporting a price target of just $173.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.1 billion, earnings will come to $989.0 million, and it would be trading on a PE ratio of 29.6x, assuming you use a discount rate of 10.6%.
• Given the current share price of $196.56, the analyst price target of $223.05 is 11.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.