Security Spending Is Down, Now So Is Check Point's Rating At Deutsche Bank

Deutsche Bank has downgraded Check Point Software Technologies Ltd. CHKP to Hold from Buy on slowing enterprise spending, mainly in banking vertical.

"CHKP derives ~30 percent of its revs mix from the financial services vertical. Assuming that this demand backdrop persists into 2H16 and that CHKP's growth slows in 2Q16 despite the big sales investments, we're finding it harder to articulate a bull case that can carry the stock into the mid-$90's," analyst Karl Keirstead wrote in a note.

However, Keirstead said the company has a loyal customer base, and the number of large Check Point Software Technologies displacements by Palo Alto Networks Inc PANW and other competitive peers in the space is small. However, he noted that the demand tone from his checks is still getting worse, not better.

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The analyst, who cut his price target to $90 from $95, now believes the company's second-quarter revenue guidance of 6 percent growth at the mid-point could be realistic versus his earlier conservative stance.

"If growth slows, it raises the chance that CHKP could acquire or invest more aggressively to fill out its product suite, impacting margins," the analyst highlighted.

As such, Keirstead cut his second-quarter revenue growth estimate to 6 percent (mid-point) from 8 percent, and 2016 revenue growth estimate to 7 percent from 8 percent. The analyst also slashed his 2016 non-GAAP EPS estimate to $4.52 from $4.60, while the company expects EPS of $4.45–$4.60.

At the time of writing, shares of Checkpoint were down 3.04 percent to $81.72.