Check Point Software Technologies (CHKP ) is small potatoes compared with Cisco (CSCO ), Symantec (SYMC ), or Juniper Networks (JNPR ), but it's emerging as the pure-play leader in red-hot Internet security. Joseph Phillips of Redwood/ Technimentals Research says Check Point's strength is in how well its products shield networks of any size and complexity from hackers. Check Point makes customized systems -- including virtual private networks (VPNs), firewalls, and intranet/ extranet security -- for small businesses, service providers, and large enterprise networks. The rise in Internet traffic, he notes, has increased networks' vulnerability -- and boosted demand for security. The stock, now at 23, is worth 30, says Phillips, based on earnings, cash flow, and favorable margins.
Jonathan Rudy of Standard & Poor's (MHP ), who tags the stock a buy, likes Check Point's "strong growth in an expanding market." The global recovery in info-tech spending, he says, will continue to lift earnings. Check Point had remained "very profitable throughout the tech downturn last year," notes Rudy, who sees profits of $1.28 a share in 2005 and $1.41 in 2006, up from 95 cents in 2004.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial