Friday, November 18, 2016

A current AIM International Fund holding: Check Point Software Technologies (CHKP) by Yiqiu (Ethan) Zhu. “Let's Check Up on Check Point Software Tech"

Check Point Software Technologies Ltd. (CHKP): “Sliding Down Hill or Growing Even Higher?”
By: Yiqiu (Ethan) Zhu, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Check Point Software Technologies Ltd. (NASDAQ: CHKP) is an information technology security solutions provider, which develops technologies to secure communications and transactions over the Internet by enterprises and consumers. The company offers their customers an extensive portfolio of network security, endpoint security, data security and management solutions.
• As the amount of connections in the Internet increase in the future, the risk for an enterprise or an individual getting hacked is increasing.
• The increasing risk of cyberattack create a huge demand for cyber security products and services.  
• The rapidly change in hacking technologies will increase the amount of upgrades and maintenance done by Check Point’s customer, which will have a strong positive effect on Check Point’s total revenue.  

Key points: The demand for cyber security is in direct proportion to the amount of connections in the Internet. With countless new connections formed every day, the world is more linked than ever. Cloud, virtualization and the Internet of Things (“IoT”) are changing the way customers deploy and consume technology. Enterprises have more opportunities than ever before to innovate and compete more efficiently. However, the greater amount of connections largely increases the risk of cyberattacks.

As a result of this increasing risk of cyberattacks, the demand for the cyber security products or services will keep growing in the future. According to Check point’s management team, they stated that the demand for cyber security will increased in the following area: Remote Connectivity, Cloud Computing, Network Virtualization, and Data Privacy.

In addition, with increasing level of connectivity in the Internet and rapid rate of technology growth, the technologies hackers used to attack an enterprise are also changing rapidly. Therefore, companies who are using check point’s products will require more upgrades and maintenance than before. Since upgrades and maintenance are Check Point’s biggest revenue segment, there is strong growth potential in Check Point’s future revenue.     

What has the stock done lately?
Recently, CHKP has increased 8.75% in value over an 18-day period. The Stock price increased from $76.2 on October 17th to $82.65 on Nov 4th. The jump in price is mostly due to a positive surprise in CHKP’s Q3 earnings report. On October 31st 2016, The company reported $1.13 earnings per share for the quarter, topping the consensus estimate of $1.08 by $0.05. As a result of the EPS surprise, CHKP reached its one month high of $84.56 on October 31st 2016.  Since that, the price slowly dropped to around $82 per share.

Past Year Performance: CHKP’s stock price had been bouncing up and down a lot over the past year, but the stock price stayed mostly in a $75 to $85 price range. Over the past year, CHKP increased 1.19% in value. The highest price over the past year is $89.66 and the lowest is $72.76. Compare to the upward slopping trend during 2013 to 2015, the stock price in 2016 seems like it is adjusting itself to find a fair value.   

Source: FactSet

My Takeaway
Since CHKP got added into the AIM International Fund, it had been a great performer. Although the stock price had been moving up and down between $75 and $85 for almost a year, I believe this is just a temporary adjustment. With disruptive technologies such as Internet of Things, Big Data, Virtual Reality, and Cloud Computing to help us create a more connected and data-focused world, the demand for cyber security will also skyrocket. Therefore, I believe the future market condition for CHKP is very beneficial and CHKP should continue to be a holding in the AIM International Fund. 


Source: FactSet