Check Point Software Q4 Guide Gives Investors A Fright

Reviewing Check Point Software Technologies Ltd. CHKP's third-quarter results, KeyBanc Capital Markets said the company's fourth-quarter outlook gave a fright to investors.

On the earnings call, the company issued below-consensus revenue forecast for the fourth quarter.

As such, the firm maintains its Sector Weight rating on the company's shares.

Incidentally, Cowen downgraded shares of the company from Outperform to Market Perform.

At the time of writing, shares of Check Point were slumping 11.57 percent to $104.09, their lowest level in nearly three months.

KeyBanc Analysis

KeyBanc Capital Market analysts Rob Owens, Liz Verity and Mike Casado said Check Point's third-quarter revenues were in line with their forecast, but $5 million above consensus expectation. Breaking up the top-line performance, the analysts said maintenance/service revenues were better than expected and blade revenue were in line, while product revenues, which fell 6 percent year over year, trailed expectations.

The analysts also noted that bookings grew a mere 1 percent to $426 million, missing their $445 million estimate. Meanwhile, the analysts said earnings per share showed modest upside.

KeyBanc Capital Markets said the Americas region fared badly, declining 2 percent year over year, marking the first decline since 2009. However, the firm said surprising strength in the non-U.S. regions helped offset the weakness.

With the weakness in the Americas creating more caution around near-term execution, the firm lowered its fourth-quarter outlook. The firm added that it has flowed some of the weakness through to its 2018 revenue forecast.

The firm believes the company is entering a new firewall cycle from a position of weakness. Though encouraged by the company's focus on selling the broader platform, the firm said it believes the key to success in the coming cycle is selling new boxes to run the enhanced capability.

In this area, the firm said the Check Point story is lacking. Additionally, the firm said a change in sales structure could take time to ramp.

"We reflect this in negative y/y product growth for the ensuing three quarters with EPS modestly bolstered via a better margin expectation," the firm said.

"We are also lowering our billings forecast, which decreases FCF estimates."