“Generational change” in the cyber security industry, at least according to the new composition of the Nasdaq 100 index: At the end of the week, the annual update to the index was published, and a share downgrade was reported. Check Point And their entry into the stock index Palo Alto Networks, Fortint and Zscaler.
The Nasdaq 100 index includes the largest companies traded on the Nasdaq, excluding financial companies. Check Point has been a part of it for many years. Apart from the loss of prestige in exiting the index, this is also expected to lead to the sale of the stock by funds that are linked to the index. The changes in the index will take effect at the beginning of the next trading week, on December 20.
Check Point, managed by Gil Shweid, Is currently traded at a market value of $ 14.7 billion. In contrast, the value of Palo Alto, which at the beginning of 2020 was similar to the value of Check Point, now stands at $ 52.5 billion. Fortint is trading at $ 54.4 billion and Zscaler is trading at $ 42.8 billion.
Check Point is showing relatively slow revenue growth
Of the three cyber companies entering the index, only Fortint is profitable according to GAAP, while the other two are not GAAP-based, but show non-GAAP net profit – excluding various accounting items.
Check Point is also profitable, both by GAAP and Non-GAAP rules, but its growth rates are much more modest than the others. According to a recent survey by Globes, the three companies joining the index showed double-digit revenue growth in the last quarter, while Check Point grew by 4.9%. In recent months, the market seems to be well rewarded with fast-growing technology companies, even if they show losses, under the assumption that current losses are due to investment in future growth.
Palo Alto Networks It entered the index shortly after it was traded on the NASDAQ, at the end of October. It was previously traded on the New York Stock Exchange (NYSE) since its issuance in 2012. The company was founded by Nir Tzuk, currently the company’s CTO and former employee of Check Point. Who has not hesitated in recent years to express his negative opinion on Check Point.
Among other things, Tzuk said in an interview with Globes in 2020: “I would not employ most of its employees. There are amazing companies in Israel in the cyber field, and this is not one of them.” Earlier, in 2013, Palo Alto put up a billboard in Ayalon that read, “You just passed Check Point. So do we.” About two years later it overtook it at market value.
Neutral recommendations, and a “missing return” from Credit Suisse
To date, most analysts (16) surveying Check Point stock recommend it with neutral recommendations, eight with positive recommendations and six with negative recommendations. The average target price for the stock that analysts punch is $ 131.48, a premium of about 19% over the current price of Check Point – $ 110.61. Since the beginning of the current year, Check Point shares have recorded a negative return of 16.8%, while the Nasdaq 100 index rose during this period by 26.7%.
Credit Suisse Investment Bank recently began surveying Check Point shares, recommending a “missing return” at a $ 100 target price. Credit Suisse believes that Check Point’s Infinity platform is unique, and is a differentiating factor, appreciating the company’s marketing efforts and encouraging product innovation – both organic and that made through acquisitions.
However, they say, “we are having a hard time finding signs of accelerating revenue growth and improving sales that will lead to an improvement in net profit growth.” In their estimation, because Palo Alto and Fortint invest more than Check Point in R&D and sales and marketing, Check Point will eventually be required to invest much more in these areas – which will reduce analysts’ forecasts in the operating profit line – or take the risk of losing market share to both companies.
When it comes to Palo Alto, analysts are much more optimistic, and the vast majority (33) recommend the stock with positive recommendations, compared to three neutrals and one that recommends selling the stock. The target price of analysts, on average, is $ 612.03, a premium of about 15.1% over the current price of the stock.