Infinity And Harmony Lead The Charge In Cloud Growth And Security Innovation

Key Takeaways

• Integration of acquisitions and new offerings in security services anticipates revenue growth and enhanced profitability through increased demand.
  
• Strong cash flow and share buybacks focus on shareholder value, potentially boosting earnings per share and overall returns.
  
• Execution risks in new ventures and delayed billings, alongside increased expenses, pose challenges to Check Point's future revenue growth and financial stability.

Catalysts

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

• The strong growth in Infinity and Harmony Emails, along with an increase in subscription revenues, indicates a future acceleration in revenue, driven by robust demand and the adoption of cloud-based solutions, which is expected to positively impact earnings growth.
  
• The Cyberint acquisition and its integration into the Security Operations Center (SOC) offering, with a focus on threat intelligence and prevention, are anticipated to enhance Check Point's managed services and collaborative security platform, potentially contributing to increased revenue and profitability over the long term.
  
• The expansion of Infinity Global Services and growth in new customer acquisitions, particularly in strategic sectors such as government and financial services, are expected to drive revenue growth, supported by the launch of new security solutions and platforms.
  
• The upcoming integration of Perimeter 81 and augmentation of SASE offerings suggest potential for additional product revenue growth, driven by increased adoption among high-end enterprises.
  
• Continued share buybacks and a robust cash flow position indicate a strong commitment to returning value to shareholders, which may boost earnings per share (EPS) over time, enhancing overall shareholder returns.

Check Point Software Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Check Point Software Technologies's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.2% today to 33.4% in 3 years time.
• Analysts expect earnings to reach $958.2 million (and earnings per share of $9.34) by about November 2027, up from $837.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.8x on those 2027 earnings, up from 22.9x today. This future PE is lower than the current PE for the US Software industry at 41.0x.
• Analysts expect the number of shares outstanding to decline by 2.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Check Point Software Technologies Future Earnings Per Share Growth

Risks

• The delays in billings from Q3 to Q4, particularly in Europe, suggest potential execution risks or softer demand in certain regions, which could impact future revenue growth and financial predictability.
  
• There are increased operating expenses due to continued investments, including the acquisition of Perimeter 81 and Cyberint, which could pressure net margins if revenue growth doesn’t keep pace with spending.
  
• The competitive landscape in cybersecurity is intense, and the company’s need to capture market share could result in pricing pressure, thereby impacting net margins and future earnings.
  
• The strategic push into new areas, such as SOC operations and cloud email security, involves execution and adoption risks which could affect revenue growth if these initiatives do not achieve the anticipated market traction.
  
• As the company shifts towards subscription-based models and the Infinity platform, this transition could introduce volatility in recognized revenue if customers delay utilization of purchased allowances, impacting short-term financial results.

Valuation

• The analysts have a consensus price target of $192.61 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 $230.0, and the most bearish reporting a price target of just $110.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.9 billion, earnings will come to $958.2 million, and it would be trading on a PE ratio of 25.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of $174.56, the analyst's price target of $192.61 is 9.4% 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.