Check Point Rally Curbed as Dell Eyes Market: Israel Overnight
Check Point Software Technologies Ltd. (CHKP)’s best start to a year since 2004 may falter as Internet attacks on companies spur Dell Inc. (DELL) and Cisco Systems Inc. (CSCO) to bolster their presence in the network security market.
Check Point, the world’s second-largest maker of equipment designed to keep company Internet networks secure, dropped by the most in a month in New York on March 16, curbing its advance this year to 18 percent. The Bloomberg Israel-US 25 Index of the most-traded Israeli companies in the U.S. was little changed at 87.55, gaining for the first week this month, by 2.5 percent. Israel’s benchmark TA-25 Index rose 0.4 percent at the 4:30 p.m. close in Tel Aviv.
Dell, the world’s third-largest maker of personal computers, agreed to buy Sunnyvale, California-based network- security developer SonicWall Inc. last week, as companies from Sony Corp. to Citigroup Inc. fall target to hackers, while online fraud and theft rises. Cisco, the largest maker of equipment for computer networks, said on Feb. 28 it will update its firewall platform with tools to identify potential threats.
“We certainly have seen a ramp up in messaging and position across a wide number of vendors” in network security products, Gregg Moskowitz, an analyst at Cowen & Co Llc, said by phone in New York on March 16. As competition increases, “new customer acquisition could be a little bit of a harder proposition for Check Point.”
Moskowitz downgraded the shares on March 16 to neutral from outperform -- meaning he expected them to provide more than the market return -- citing intensified competition as well as the company’s valuation for the cut.
Expensive v. Nasdaq
Check Point trades for 19.5 times estimated earnings, compared with the average 16.3 for companies traded on the Nasdaq Composite Index. (CCMP) The difference between the two ratios reached 3.55 on March 15, the widest in Bloomberg data collated since January 2010.
The Tel Aviv-based company slid 1.8 percent to $61.74 on March 16, the biggest one-day drop since Feb. 10. The stock is still enjoying the best start to a year since 2004, when it jumped 24 percent. The Nasdaq is up 17 percent this year and was little changed at 3,055.26 on March 16.
Israel, whose population of 7.8 million is similar in size Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.
Dell, based in Round Rock, Texas, agreed to buy SonicWall on March 13. SonicWall’s technology detects attacks and protects networks from intrusion and is also used to secure data that’s stored centrally.
The company is expanding its so-called next-generation firewall business, developing technology to prevent cyber attacks and control how users access sites such as social networks, SonicWall Chief Executive Officer Matt Medeiros said on a March 13 conference call with analysts.
“The deal allows Dell to play in the next-generation firewall market,” Shebly Seyrafi, an analyst at FBN Securities, wrote in a March 13 research note. “It will compete against leaders such as Check Point and Palo Alto Networks primarily.”
Palo Alto Networks Inc. is a closely held Santa Clara, California-based developer of next-generation firewall security.
Cisco said on Feb. 28 that it’s updating its firewall platform to move “beyond the capabilities of existing next generation firewalls” with tools to control applications and identify potential threats to a system. The update shows Cisco wants to compete in the firewall market after going “through a period of time where they lost some focus,” Sterling Auty, an analyst at JPMorgan Chase & Co., said by phone from New York.
Palo Alto Networks
Check Point may also face increased competition from Palo Alto Networks, according to Cowen & Co.’s Moskowitz. Companies are turning to more sophisticated tools to control how employees use social networks and online applications, he said.
Nir Zuk, Palo Alto Networks’ founder and a former engineer at Check Point, said in October that the company is preparing for an initial public offering and that sales would exceed $200 million in 2011.
Mike Haro, a spokesman for Palo Alto Networks, declined to comment or provide updated figures when contacted by phone on March 16.
CheckPoint will boost revenue by 11 percent this year to $1.4 billion, according to the average of 27 analyst estimates compiled by Bloomberg.
‘100% Focus on Security’
“We have a 100 percent focus on security,” Fred Kost, Check Point’s head of product marketing, said by phone from the company’s U.S. headquarters in Redwood City, California on March 16. “We’re not trying to do a lot of other things, and so we really understand security well from a tech perspective. That focus allows us to have really good, focused security products.”
MagicJack VocalTec Ltd. (CALL), the Israeli company whose founders invented the technology used to make phone calls over the Internet, climbed 5.2 percent to $25.45, a six-year high.
Oppenheimer & Co. analysts including Tim Horan raised their price target for MagicJack’s shares to $27 from $24 and reiterated an outperform rating on the shares in a March 16 research note. Fourth-quarter results “came in slightly better than our estimates on strong volume growth and better expense management” and MagicJack has “strong sales momentum,” the analysts wrote.
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