Check Point Is Undervalued Compared To Palo Alto Networks: Analyst

The cybersecurity firm is seeing a multitude of growth opportunities but has a ‘significant valuation gap relative to competitors,’ according to a research analyst at William Blair.

Check Point Software Technologies has major growth opportunities ahead but has not been appreciated by investors to the same degree as cybersecurity rivals such as Palo Alto Networks, according to an equity research analyst.

Palo Alto Networks recently became the first pure-play cybersecurity vendor to reach a market capitalization of $100 billion, and as of this writing was valued at $107.86 billion. Check Point, meanwhile, had a market cap of $18.73 billion as of Wednesday afternoon.

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But positive indicators for Check Point suggest the company’s stock could hit an “inflection point” this year, wrote Jonathan Ho, research analyst at William Blair, in a note to investors Tuesday. Overall, Check Point “has a significant valuation gap relative to competitors such as Palo Alto Networks,” Ho said.

Check Point’s stock is trading at roughly six times its revenue, compared to more than 12X for Palo Alto Networks shares and 9X for Fortinet shares, he said.

Check Point competes with Palo Alto Networks, which was founded by former Check Point engineer Nir Zuk, in its core network security business as well as in numerous other segments including cloud security, SASE (secure access service edge) and endpoint security.

In his note to investors, Ho said he was upgrading Check Point’s stock to an “outperform” rating.

“We believe the company is poised to benefit from prior Infinity deals signed, new opportunities based on its consolidated platform story, and launch of new firewall products,” he wrote in the note. “While our fourth-quarter checks remain somewhat consistent with prior periods, we are hearing more positive commentary on Check Point’s engagement with the channel and early pipeline build for 2024.”

‘Platform Player’

Ho also pointed to Check Point’s profitability and surging customer demand for cybersecurity tools as other appealing aspects.

“In our view, investors looking for a highly profitable business that has been written off by many investors may want to reconsider the story,” he wrote.

Ultimately, “given the relatively low expectations for the company, valuation gap, and new product opportunities, we believe the risk/reward for Check Point has shifted positively,” Ho said. Check Point is also “likely to remain a relevant platform player in the space” for the longer term, he wrote.

The upgrade for Check Point follows the company’s launch this week of its new channel program, including an array of updates for partners across the tiering system, pricing and certifications.

Check Point Global Channel Chief Francisco Criado told CRN that the enhancements are aimed at helping to accelerate its expansion with partners in areas beyond its core network security segment, such as in email, cloud and endpoint security. “We want them to sell our comprehensive portfolio,” said Criado, vice president of global partner ecosystem organization at Check Point.

Many of the new components of the program are updates that have been requested by partners, said Kin Mitra, president and CEO at Fort Lauderdale, Fla.-based Mission Critical Systems. “Check Point really listened to us and did some good things here,” Mitra told CRN.

Product Opportunities

In his note, Ho wrote that Check Point’s challenges include “needing to stabilize its product business while still delivering strong growth in subscription services/Infinity.”

However, the product cycle “could start to be a positive driver,” he said, pointing to Check Point’s AI-powered email security capabilities that “remain a bright spot in our discussions.”

Additionally, SASE could be an “incremental opportunity,” Ho wrote. “We have not seen Check Point have a lot of success so far, but the market is experiencing rapid expansion and it has a large installed base to sell into as it adds new SD-WAN capabilities onto the platform.”