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Technology Stocks : Check Point Software (CHKP)
CHKP 111.31+0.2%Nov 30 4:00 PM EST

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To: D. K. G. who wrote (7144)11/16/2004 12:55:43 PM
From: P.M.Freedman   of 7150
Another investment institution that caught my eye during the third quarter was Franklin Resources (NYSE:BEN), which expanding its holding in Check Point Software Technologies (Nasdaq:CHKP) by 4.2 million shares, to reach a holding of 27.4 million shares, amounting to 11% of the company. Franklin Resources had actually sold Check Point shares during the second quarter. Franklin Resource's stake now equals that of Check Point founder and senior VP Marius Nacht. Check Point CEO Gil Shwed is still the largest shareholder in the company, with 30 million shares, not including options he received during the summer. Nacht also received options. The number of Check Point shares bought by Franklin Resources equals the number sold by Morgan Stanley during the third quarter, leaving it with 5.1 million.

UBS (SWX:UBS) downgraded its recommendation for Check Point last week. The share recovered quickly from this odd recommendation, which was offset by the optimism displayed by Check Point's managers at recent conferences. At a Goldman Sachs conference last week, Shwed spoke in a positive tone that I hadn’t heard for years. I also believe that the share will soon soar, after "Barron's" published an article on the company whose headline says it all: "Firing up Check Point's firewalls". With cash reserves amounting to $6 per share, stock buy-backs, and earnings per share of $1.15 expected for 2005, "Barron's" writes, "Check Point 's earnings multiple is 20 times. If Gil Shwed can keep the growth going, Check Point investors could nudge up that earnings multiple -- and the shares."

It seems that business is growingfor both Check Point's traditional and new products, including those of Zone Labs' ZoneAlarm personal firewall for home PCs and security gateways, so it is quite reasonable that Check Point's share and multiple will rise. In the article, Shwed claims that personal firewalls from competitors like Microsoft (Nasdaq:MSFT) and Symantec (Nasdaq:SYMC) don't allow such customization. The "Barron's" correspondent also expressed concern that Nokia (NYSE; LSE: HEX:NOK), which accounts for a third of Check Point's sales, could turn into a competitor. Nokia chairman and CEO Jorma Jaakko Ollila declined to expand on the subject with "Barron's".

UBS mentions potential competition for Check Point from Cisco Systems (Nasdaq:CSCO) and Juniper Networks (Nasdaq:JNPR) next year. However, the third quarter results of both companies show no sign of it. Cisco's security business grew by only 2% in the quarter, compared with the preceding one, despite a recent restructuring. Juniper Networks subsidiary NetScreen Technologies was a great disappointment in the third quarter. I believed that Check Point's announcement of a another buy-back of $200 million worth of shares would precede more buy-backs. On the basis of a recent "Globes" article, it is possible that the company founded by Shlomo Kramer will buy back more shares soon.

Published by Globes [online] - - on November 16, 2004
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