UBS Likes Check Point on Valuation Drop: Israel Overnight

Check Point Software Technologies Ltd.’s slide to the cheapest level in four months is a buying opportunity to UBS AG on speculation the Israeli company will benefit as cyber-security spending climbs.

Check Point fell a fourth day in New York, losing 1 percent to $45.26 yesterday. The Tel Aviv-based network-security provider traded at 12.9 times estimated earnings, the lowest level since Nov. 16. Check Point had the biggest decline in the last month on the Bloomberg Israel-US Equity Index, which fell 1 percent yesterday. MagicJack VocalTec Ltd. surged after posting its first annual operating profit since 1996.

Shares have slumped since Check Point forecast Jan. 23 the slowest quarterly sales growth in four years amid concern competitor Palo Alto Networks Inc. will steal market share. The Senate Intelligence Committee said last month that cyber threats are a key issue facing the U.S. Company software spending will increase in the second half, UBS analysts wrote in a note yesterday, naming Check Point one of the bank’s top 40 stocks.

“The valuation really relates to the company’s prospects for growth,” Daniel Cummins, an analyst at B Riley & Co., which rates Check Point stock the equivalent of hold, said by phone in New York yesterday. “If Check Point can produce unit growth of 10-to-15 percent, the stock would be very attractive because that will show that customer attrition is an overblown concern and customers are continuing to buy what is a good product.”

Unit sales of among Check Point’s core appliances increased about 15 percent last year, Chief Financial Officer Tal Payne said on the Feb. 1 earnings call. The company saw a growing number of larger deals, Payne said, with 62 customers that had transactions greater than $1 million compared to 49 in the same period last year.

Valuation Gap

Check Point’s valuation is 91 percent below Santa Clara, California-based Palo Alto Networks’s, which is trading at 148 times estimated earnings.

UBS included Check Point, along with seven other technology companies, in its April 2 note of Global Top 40 stocks. In a separate report, also published on April 2, UBS upgraded the industry because its valuation was below the broader market for the first time in 17 years.

“There’s been broad underperformance in the global tech sector relative to the market,” Nick Nelson, a London-based strategist at UBS and author of both reports, said in a phone interview yesterday. “An increase in business investment and capex will help the sector.’

The enterprise firewall market will expand 11 percent this year to $7.7 billion, according to a Feb. 7 report from researcher Gartner Inc.

Juanita Mo, a San Carlos, California-based spokeswoman for Check Point, said in an e-mail yesterday the company has no comment on its valuation.

CaesarStone, MagicJack

The Bloomberg Israel-US gauge fell to 89.10 yesterday, the lowest in four weeks. Israel’s benchmark TA-25 Index dropped 0.2 percent to 1,237.85 at 9:46 a.m. in Tel Aviv.

CaesarStone Sdot Yam Ltd. led declines on the Israel-US gauge, slumping 6.7 percent to $23.71. It was the third straight day of declines for the maker of quartz kitchen countertops, the longest losing stretch since December, after its two biggest investors registered to sell shares April 1.

MagicJack had the biggest gain in the Israel-US gauge, surging 5.4 percent to $15.75, the highest since Jan. 8. The company, whose products allow phone calls to be made over the Internet, reported the first annual operating profit since its 1996 listing.

‘‘They have a low-cost solution that appeals to the market,” said Fran Caulfield, research director at Mountain Lakes, New Jersey-based Insight Research Corp., which focuses on telecommunications companies, said by phone yesterday. “The pessimism has diminished and they’re back on a growth trajectory.”

(Corrects number of companies in seventh paragraph.)
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