Argus Downgrades Check Point Software On Execution Issues

Check Point Software Technologies Ltd. CHKP lowered its 2018 guidance due to issues with its sales execution, and one Wall Street firm isn’t feeling so bullish on the cybersecurity stock anymore.

The Analyst

Argus analyst Joseph Bonner downgraded Check Point from Buy to Hold and reduced the 2018 and 2019 EPS estimates from $5.83 and $6.54 to $5.66 and $6.31, respectively.

The Thesis

Check Point can’t seem to get its sales execution on the right track, and the company’s latest guidance cut is an indication that things are worse than Argus anticipated, Bonner said in a Wednesday note. The issues will likely persist at least throughout the remainder of 2018, the analyst said. 

“Due to the company's transition to a subscription-based business model, more revenue is shifting into deferred revenue — leading to slower growth in reported revenue,” Bonner said.

The stock will likely remain rangebound while the company works through its issues, the analyst said. 

The silver lining for Check Point investors: Bonner said he is still bullish on the company’s software products, and there’s certainly a market for its technology. Check Point is also still pursuing cutting-edge technology via small acquisitions and new product development.

Argus also estimates that Check Point is still on track to deliver 10-percent annual earnings growth in the long-term despite reporting just 8.6-percent earnings growth in the first quarter of 2018.

Price Action

Check Point stock is down 2.9 percent since its Q1 earnings report April 25 and is now down 6 percent in the past year.

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