Palo Alto IPO Boosts Check Point Bets: Israel Overnight

Check Point Bearish Bets Jump on Palo Alto IPO
A worker trades in the foreign exchange room of the BenLe'umi Bank in Tel Aviv. Photographer: Ahikam Seri/Bloomberg

Options traders are the most bearish in seven years on Check Point Software Technologies Ltd. shares as concern deepens that a new competitor will reduce its dominance as the world’s second-largest security networks maker.

The ratio of outstanding puts to sell the stock of Check Point versus calls to buy the shares climbed to 1.14 in New York, the highest level since 2004. The Tel Aviv-based technology company fell to the lowest level in a year yesterday. The Bloomberg Israel-US Equity Index of the most traded Israeli companies in the U.S. added 0.4 percent to 83.12, led by Tower Semiconductor Ltd.

Check Point shares have lost 23 percent since April 6 when Palo Alto Networks Inc., an Internet security company, said it registered with the U.S. Securities and Exchange Commission for an initial public offering valued at $175 million. The Israeli technology company reported on April 23 slower growth in first-quarter sales of product licenses.

“The issue is that Palo Alto is looking to go public and they’ve been pretty actively engaging investors and pitching themselves as the Check Point killer,” Brian Freed, Memphis-based vice president of equity research at Wunderlich Securities Inc., said by phone yesterday. “It created a growing sense of concern that they are a material threat going forward.”

Israel’s TA-25 benchmark index fell 0.3 percent to 1,078.77 in Tel Aviv today, taking its loss to 0.6 percent in 2012, compared with an advance of 2.3 percent for the Israel-US Equity Index.

Open Interest

Palo Alto, based in Santa Clara, California, reported total revenue was about $180 million in the nine-month period ended April 30, according to a June 8 filing. Palo Alto said last week it plans to expand operations in Latin America, with offices in Sao Paulo and Mexico City.

Mike Haro, a spokesman for Palo Alto, declined to comment yesterday when contacted by phone about the company’s IPO plans.

Traders boosted bearish contracts on Check Point in the past month. Open interest for puts on the stock rose 15 percent from the May 18 expiration to 25,251 contracts on June 18, data compiled by Bloomberg show. That compared with a 2.6 percent decline in calls to 22,504 options.

Check Point, which derived about 40 percent of revenue from Europe, the Middle East and Africa in 2011, retreated 1.1 percent to $48.64 yesterday in New York, the lowest since March 2011. The shares have retreated for five consecutive days, the longest losing streak since Aug. 8.

‘Competitive Dynamic’

“The competitive dynamic Palo Alto brings in addition to potential slowing growth in Europe is creating concern about overall growth,” Aaron Schwartz, an analyst at Jefferies & Co. Inc., said by phone from New York yesterday. “It’s hard to get your arms around how they can recover.”

Check Point will probably say sales rose to $333 million in the second quarter, up from $301 million in the year-earlier period, according to the mean estimate of 26 analysts surveyed by Bloomberg.

The company, whose customers include Dell Inc. and Hewlett-Packard Co., posted revenue of $313 million in the first quarter, compared with the mean estimate of $312.7 million by 26 analysts in a Bloomberg survey.

Israel, whose population of 7.8 million is similar in size to Switzerland, has about 60 companies trading on the Nasdaq Stock Market, the most of any nation outside the U.S. after China. The country is also home to more startup companies per capita than the U.S.

Medical Imaging

Tower, an Israeli maker of customized chips, surged 4.8 percent to 77 cents a share in New York, the sharpest increase since April 24. The Tel Aviv-traded stock was little changed at 2.9 shekels, or the equivalent of 75 cents, today.

The company worked with the Science and Technology Facilities Council’s Rutherford Appleton Laboratory to assist in the development of an image sensor for medical imaging, according to a Business Wire statement yesterday.

EZchip Semiconductor Ltd., the Israeli maker of network processors, jumped 2.2 percent to $37.76 in New York, the highest level since May 29. The shares added 2.5 percent to 147.7 shekels, or the equivalent of $38.20.

Investors should buy EZchip’s August $38/$43 call spreads, Jim Strugger, an options strategist at MKM Partners LLC, wrote in an e-mailed report yesterday.

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