Wednesday, FBR Capital Markets downgraded Check Point Software Technologies Ltd. (CHKP) shares to Market Perform from Outperform with a price target of $29. The brokerage maintained its 2009 EPS estimate of $1.94, and its 2010 estimate of $2.18.
Analyst Daniel Ives said that with shares up about 45% year-to-date, compared to the Nasdaq up 29% year-to-date, and fast approaching his price target of $29, he believes CHKP's valuation represents a more neutral risk/reward at current levels.
The analyst noted that this is not a call on third quarter as his estimates remain unchanged, given his belief that business conditions in the field have been tracking generally in line with Street expectations, but rather on valuation as shares are now within 6% of his price target of $29 (13x his fiscal 2010 EPS estimate).
Although the company was the Rodney Dangerfield of the software world for many years, the analyst was pleased to see Check Point finally get some respect from the Street during the past year as his thesis played out. That said, the analyst still has concerns surrounding macro headwinds, especially in Europe, which could temper near-term growth expectations for CHKP, in his opinion.
With much of the "valuation catch-up" now in the rear-view mirror, as the company has done a commendable job of navigating through this downturn with its strong fundamental profile still intact, the analyst believes the stock will be essentially range-bound in the near term until he start to see success around the Nokia security appliance acquisition begin to manifest itself fully on both the top and bottom line beginning in 2010.
The analyst remains big fans of the CHKP story over the long term and believes a strong product cycle/Nokia security appliance acquisition represents a nice potential growth catalyst for fiscal 2010, but he is moving to the sidelines on the name while maintaining his price target of $29.
Currently, CHKP is up $0.24 or 0.88% and trading at $27.62.
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