B of A Securities analyst Tal Liani downgraded Check Point Software Technologies Ltd (NASDAQ:CHKP) from Buy to Neutral and lowered the price target from $205 to $195.
On Tuesday, Check Point reported fiscal third-quarter revenue growth of 7% to $635.10 million, almost inline with the analyst consensus estimate of $635.14 million. Adjusted operating margin declined to 43% from 45% the prior year.
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Given the company's modest growth trajectory, the valuation seems stretched, as per Liani.
The analyst expected a recovery in billings next quarter despite the quarter's weak billings growth of 5.8% year-over-year, which fell short of the Street's 8.2% expectation.
However, his main concern is the overall low growth trajectory despite new products, portfolio additions, and ongoing go-to-market challenges.
The market seeks visibility toward double-digit growth, but Liani's analysis indicates this is likely for 2025 with a substantial surge in appliance revenue.
The analyst noted limited further upside, with the stock up 37% over the last 12 months and trading at 15 times forward EV/FCF with mid-single-digit growth.
He adjusted our estimates and lowered his price target, now based on 16 times the 2026E EV/FCF multiple, down from 18 times for 2025.
Infinity now contributes 15% of total revenue, supporting some long-term growth resilience, Liani said.
Management noted weakness in Europe but expected billings recovery in the fourth quarter, projecting 7.1% growth. Despite substantial investment in product updates, such as the Harmony, Infinity, and Quantum lines, and go-to-market efforts, overall growth remains limited to mid-single digits, the analyst flagged.
This modest trajectory constrains stock upside until the outlook improves, as per Liani.
Checkpoint's revenue splits into product, subscription, and maintenance. In 2025, the analyst expects maintenance revenue to accelerate from ~2% to 3.5% year-over-year, thanks to Infinity-related professional services.
Subscription revenue slowed to 11.5% year-over-year in the third quarter, under the Street's 13.0%, while product revenue rebounded 4.1% after last year's declines.
To achieve 10% total revenue growth in 2025, product revenue would need to jump from 4% to 20%, which appears infeasible in the current competitive landscape, as per Liani. He instead modeled 1.6% product growth and 5.6% total revenue growth for 2025.
Price Action: CHKP stock closed down by 2.24% to $173.89 on Wednesday.
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