Check Point Software Technologies Ltd. (CHKP) slid the most in a month as RBC Capital Markets cut its price target for the world’s second largest network security maker by 18 percent amid increased competition.
The Israeli technology developer dropped the most since Aug. 30 in New York yesterday, after posting a 4.5 percent advance in September, the first monthly gain in six months. Check Point led the Bloomberg Israel-U.S. equity index of the most traded Israeli companies in New York down 1 percent to 85.85. Allot Communications Ltd. (ALLT), the Israeli developer of network traffic management technology, was the biggest decliner on the index. The TA-25 Index gained 2.3 percent at the close in Tel Aviv today after trading resumed after a two-day holiday.
Check Point is falling as stocks on Israel’s benchmark TA-25 Index completed their best quarter in two years. RBC reduced its 12-month price estimate for the Tel Aviv-based company yesterday and downgraded it to the equivalent of hold from outperform. More competition from Santa Clara, California- based Palo Alto Networks Inc. (PANW), as well as new rivals F5 Networks Inc. (FFIV) and Sourcefire Inc. (FIRE), will force Check Point to offer more discounts, RBC analyst Robert Breza wrote in his report.
“The company needs to reprove itself among investors that there is potential for reacceleration of growth,” Daniel Ives, an analyst at FBR Capital Markets & Co. that rates Check Point buy, said by phone in New York yesterday. “Check Point is in the investor penalty box and they have to show a good second half performance in order to get incremental investors to focus back on them again.”
The company will probably post the slowest sales growth in three years in the third quarter, according to the mean estimate of 27 analysts surveyed by Bloomberg. The Israeli company will have sales of $332.8 million in the third quarter, a year-on- year growth of 7.9 percent, the least since the first quarter of 2009, according to analysts’ estimates.
Palo Alto Networks, which also provides Internet firewall technology, raised more money than planned in its initial public offering in July. The company offered 6.2 million shares at $42 each, more than the initial price range of $34 to $37, and has advanced 44 percent since its debut. Palo Alto, along with new entrants like F5 Networks and Surefire, has garnered the most competitive attention from investors, RBC’s Breza wrote in his report yesterday.
“The increased competition from all players will likely lead to more aggressive discounting and concessions,” Breza said. “Which may not allow CHKP to grow above the industry rate.”
‘Still a Major Player’
Check Point dropped 3 percent to $46.72 in New York, extending its 2012 decline to 11 percent. The company had a 14.5 percent share of the network security market based on revenues in 2011, according to Framingham, Massachusetts-based data research firm IDC. Cisco Systems Inc. (CSCO) is the leading company in the segment, IDC data show.
“It’s a beaten-down stock that is still a major player in the security market,” said FBR’s Ives. “Investors sense that the company’s better days can be seen in the rear-view mirror. They need to show that they are still fueling the growth engine.”
Israel, whose population of 7.8 million is similar in size to 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.
Hod Hasharon, Israel-based Allot slumped 5.7 percent yesterday to $25, closing at a 45-cent premium to its shares in Tel Aviv. The stock gained 2.5 percent to 98.4 shekels, or the equivalent of $25.32, on the Tel Aviv stock exchange today.
Israel’s benchmark TA-25 index surged 12 percent in the third quarter, the biggest advance since rising 15 percent in the same period of 2010.
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