Cyberark-Check Point Merger 'Makes Sense,' JPMorgan Says

Cyberark Software Ltd CYBR shares are up more than 20 percent on Wednesday after Israel's Haaretz reported the company is in talks to be acquired by Check Point Software Technologies Ltd. CHKP. While analysts at Oppenheimer think a merger has a "low probability" of happening, others on Wall Street think differently.

After the report surfaced, JPMorgan's Sterling Auty said he thought a combination of both companies "makes sense" due to their similar technology, location (both are in Israel), Check Point's $3 billion-plus cash position and the potential for its distribution channels to take Cyberark sales to a "new level of scale."

Auty holds an Overweight rating on Cyberark with a $48 price target, and a Neutral rating on Check Point with an $86 price target.

Check Point's Cash Hoard

In particular, Auty said Cyberark would be a "good use of cash" for Check Point. The company has issued continual share buybacks since 2013, but there's "a lot more it can do." Check Point management has also touted the potential for accretive acquisitions in the past, but nothing has happened yet, Auty added.

Potential For Scale

As for why the deal makes sense, Auty explained that Check Point's distribution offers immediate upside for Cyberark. Check Point has "thousands of resellers worldwide," while Cyberark has smaller, mixed exposure in North America, Europe and Asia.

Upside Potential

Auty also projected what he thought a "highly accretive" combination could do for Check Point's bottom line. It could add $0.10 to $0.20 to the company's EPS in Year 1 and 25 to 35 cents in Year 2 -- at its highest point, that's nearly 10 percent upside to last year's earnings.

Cyberark is up almost 21 percent, and is hitting resistance near the $47.50 level. Check Point is mixed on the day.