Expansion Into AI Security And Infinity Platform Will Strengthen Market Position

Key Takeaways

• Strong demand for key products, strategic platform adoption, and market expansion aims to drive significant revenue and margin growth.
  
• AI-driven solutions, strategic leadership focus, and share buybacks enhance competitive positioning and support shareholder value and EPS growth.
  
• The company's reliance on new product launches and increased R&D could pressure margins amid aggressive competition and potentially variable tax impacts.

Catalysts

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

• Strong demand for Check Point's Quantum Force appliances, complemented by a focus on developing a hybrid mesh network and potential upside from competitor firewall refreshes, suggest a path for revenue growth in 2025 and beyond.
  
• The adoption of Check Point's Infinity Platform continues to grow, particularly with double-digit growth in its earnings, indicating potential for increased revenue and net margins as more services are consolidated onto this platform.
  
• Expansion into AI-driven security solutions and innovation in cloud network security and unified policy management may drive new revenue streams and strengthen Check Point's competitive position.
  
• Strategic go-to-market changes, including increased leadership focus and visibility in key regions like the Americas, aim to enhance sales effectiveness and could contribute to accelerated revenue growth.
  
• Regular share buybacks, which reduce the total number of outstanding shares, are expected to boost EPS growth over time, supporting shareholder value even as operational changes take root.

Check Point Software Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Check Point Software Technologies's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 33.0% today to 32.5% in 3 years time.
• Analysts expect earnings to reach $985.4 million (and earnings per share of $10.19) by about March 2028, up from $845.7 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 30.2x on those 2028 earnings, up from 29.4x today. This future PE is greater than the current PE for the US Software industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 3.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.66%, as per the Simply Wall St company report.

Check Point Software Technologies Future Earnings Per Share Growth

Risks

• The increasing operating expenses, driven by continued investment in go-to-market strategies and the Cyberint acquisition, could pressure net margins as these costs grow faster than revenue.
  
• The reliance on new product launches, like the Quantum Force and Infinity Platform, to drive growth in an increasingly competitive market could result in inconsistent revenue growth if adoption does not meet expectations.
  
• Significant tax assessments worldwide may lead to variability in effective tax rates, potentially affecting net income if future provisions do not favorably adjust as they did this year.
  
• Pressure from competitors offering aggressive discounts could impact Check Point’s ability to maintain pricing power and market share, potentially suppressing revenue growth and affecting overall profitability.
  
• A shift towards a broader network security focus, while necessary, might result in increased R&D expenditure to keep up with rapid innovation in AI and cloud security, impacting net margins if revenue growth does not sufficiently offset these costs.

Valuation

• The analysts have a consensus price target of $232.528 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 $280.0, and the most bearish reporting a price target of just $160.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $985.4 million, and it would be trading on a PE ratio of 30.2x, assuming you use a discount rate of 9.7%.
• Given the current share price of $229.75, the analyst price target of $232.53 is 1.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.