Check Point Software Technologies Ltd. (CHKP) had its longest stretch of daily gains since 2010 on prospects demand from governments for more advanced cybersecurity will fuel profit growth for the Israeli company.
Shares of Check Point rallied 4 percent in New York over the seven days to May 10 to $48.40, fueling a 1.9 percent advance in the Bloomberg Israel-US Equity Index of the biggest Israeli companies in the U.S last week. EZchip Semiconductor Ltd. (EZCH) led gains on the measure last week, jumping 13 percent to a three-month high after posting a 6.1 percent sales increase.
Check Point, based in Tel Aviv, got 45 percent of sales from the Americas last year and does as much as 10 percent of its business with the public sector, according to B. Riley & Co. President Barack Obama ordered a boost to U.S. cybersecurity in February, and Sourcefire Inc. (FIRE), a Columbia, Maryland-based competitor of Check Point, expects the government to be a “very, very strong customer,” in 2013, Chief Executive Officer John Becker told a conference last week.
“Public sector spending on cybersecurity going forward will be faster than on other things,” Daniel Cummins, an analyst at B. Riley in New York who rates Check Point hold, said by phone May 10. “Check Point is the bellwether of the network security group, and they have the lowest valuation and generate the most cash. There’s been a bump-up in optimism.”
Check Point trades at 13.8 times estimated earnings, the lowest relative to network security peers Sourcefire, Sunnyvale, California-based Fortinet Inc. (FTNT) and Santa Clara, California-based Palo Alto Networks Inc. (PANW)
Cybersecurity has gained renewed attention this year after a security breach of a U.S. Federal Reserve website, intrusions at the New York Times and other news organizations attributed to Chinese hackers and a wave of denial-of-service attacks that disrupted the websites of U.S. banks.
Obama and intelligence officials have said one of their top policy priorities is preventing cyber attacks that could disrupt banks, telecommunications networks, utilities or other vital services. The Senate Judiciary Subcommittee on Crime and Terrorism held a hearing on May 8 on how the government and private sector are responding to cyber threats.
Check Point is also focused on boosting sales from the private sector after reporting the slowest revenue growth during the first quarter in four years. The company introduced a cybersecurity product last weak called 600 Appliances. Starting at $399, it targets small businesses, according to a statement.
“We haven’t had a product at a price point and package that competes as much as the 600 Appliances will help us compete,” Fred Kost, head of product marketing at Check Point in Redwood City, California, said in a telephone interview on May 9. “We’re setting a new mark for that class of products.”
Spending on cybersecurity by small-to-medium-sized companies will grow at least 10 percent a year through 2015, twice as fast as their expenses for technology overall, a report from research IDC found last year.
While demand may be growing from the government and small business, Israel Hernandez, an analyst MKM Partners LLC, said Check Point still needs to be successful at the “high end” of the market.
“Their revenue growth has lagged,” Hernandez, who has a buy rating on Check Point, said by phone on May 10 from San Francisco. “You have to move a lot of $399 product to move the needle on Check Point’s revenue base.”
The Bloomberg Israel-US Equity Index rose 1.9 percent last week to 92.20, the highest in a year. Of the 17 companies on the 25-member gauge that have reported earnings this season, aggregate sales trailed estimates by 0.2 percent, while earnings beat by 0.6 percent.
Israel’s benchmark TA-25 Index added 0.2 percent at 10:02 a.m. in Tel Aviv.
EZchip led the gains on the Israel-US gauge, surging 13 percent last week to $26.03. Shares in Tel Aviv today extended last week’s 13 percent advance, adding 0.3 percent to 92.25 shekels, or $25.83. The Yokneam, Israel-based fabless chipmaker reported May 8 first-quarter sales of $15.3 million, a 6.1 percent gain from a year earlier and above the $15.1 million mean estimate of nine analysts surveyed by Bloomberg.
MagicJack VocalTec Ltd. (CALL) slumped 11 percent to $17.06 on May 10, reversing the 9.1 percent rise the day before. The Netanya, Israel-based company, whose founders pioneered voice-over-Internet technology, will post 2013 net revenue in 2013 of as much as $160 million, MagicJack said in a statement on May 9. That represents a growth rate of 1 percent compared with 2012, when sales grew 43 percent on an annual basis.
Teva Pharmaceutical Ltd. CEO Jeremy Levin met with Israeli Finance Minister Yair Lapid on May 10 and agreed to start “intensive” talks on tax benefits. The world’s largest maker of generic drugs, based in Petach Tikva, Israel, gained 1 percent in New York last week to $38.89. Shares in Tel Aviv this morning added 0.9 percent to 137.9 shekels, or $38.62.
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