How To Trade Check Point Software After A Mixed Second Quarter

Reviewing the second-quarter results of Check Point Software Technologies Ltd. CHKP, Piper Jaffray offered some tips on what to do with the stock, given the mixed nature of the results.

Analyst Andrew Nowinski noted that the shares of the company have ran up notably, gaining 27 percent in the year-to-date period. The analyst noted that valuation has reached a peak of fourteen times its estimated EV/FCF for 2019.

The firm noted that both billings growth and product/subscription growth continues to decelerate, which is likely to put pressure on FCF growth going forward.

Accordingly, Piper Jaffray downgraded shares of the company from Overweight to Neutral and lowered its price target from $116 to $108.

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On the second-quarter metrics, the firm noted that revenues of $459 million beat the consensus estimate of $454.4 million and exceeded the mid-point of the guidance for the 17th straight quarter. However, billings growth was slightly below expectations but gross margin was above Street expectations, the firm said.

The firm also noted that earnings per share of $1.26 was above the high end of the guidance despite a 2–3 cent per share tax impact.

Piper Jaffray indicated that product and subscription revenues grew, but at slower rate than in the first quarter, as weakness in high-end products, especially within the financial vertical hurt.

The firm attributed the below-consensus third quarter guidance to Yom Kippur falling on the last day of the quarter. Despite the third-quarter headwind, the firm noted that company reiterated its 2017 earnings per share and revenue guidance, which surrounds the consensus estimates.