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Check Point Software Technologies Checks All of our Boxes
for a Long-Term Investment

Check Point Software Technologies is a pure-play cybersecurity vendor. The company offers solutions for network, endpoint, cloud and mobile security in addition to security management. Check Point sells to enterprises, businesses, and consumers and protects over 100,000 organizations and millions of users in 88 countries, notes Ingrid Hendershot, money manager and editor of Hendershot Investments.

Market Innovator

Check Point Software Technologies (CHKP) founder and CEO, Gil Shwed, took his first programming class at age 10. Four years later, he took his first job as a system administrator at the University of Jerusalem. Rather than postponing his compulsory first military service by pursuing academic studies, Gil Shwed joined the Israeli army at age 18 so as not to “delay his life.” The Israeli army shortly recruited him into an elite computer unit and, in the late 1980s, assigned him the task of securely connecting two classified networks that were literally behind the wall from one another. Thus, Mr. Shwed became known as the inventor of the modern firewall which paved the way for the founding of Check Point Software Technologies in 1993, just as worldwide Internet connections and the need for network security exploded. That year, Mr. Shwed invented and patented stateful inspection, laying the foundation for the first version of Check Point’s renowned FireWall-1. Over 73 patents and a quarter century later, Check Point’s groundbreaking technology remains the gold standard for network security.

In 2017, the company introduced Check Point Infinity, the first consolidated security solution across networks, clouds, endpoints and mobile platforms. With the 2018 acquisition of Dome9, Check Point enhanced its platform by adding security and compliance solutions for multi-cloud deployments across Microsoft Azure, AWS and Google Cloud platforms. Check Point recently introduced Infinity R81, its next generation unified cybersecurity platform that delivers autonomous threat prevention providing protection against 5th Generation mega-cyberattacks, malware, ransomware and zero-day cyber threats.

Profitable Growth

Check Point Software generated solid growth during the past five years with revenue and EPS compounding at 5% and 10% annual rates, respectively. Check Point’s highly profitable operations consistently deliver net profit margins exceeding 40% and returns on shareholders’ equity hovering around 20%. The security subscription portion of the business is very profitable, with 33% of total revenue now coming from security subscriptions.

Management is expecting high profitability to continue with fourth quarter revenue expected in the range of $525 million to $575 million and earnings estimated in the range of $2.00 to $2.18 per share.

Strong Balance Sheet

Check Point Software has a safe and secure balance sheet with no long-term debt. Check Point has operated debt-free for over a decade. In addition, Check Point Software has $3.9 billion in cash and marketable securities on its balance sheet as of 9/30/20. With minimal capital expenditure needs, Check Point Software generates strong free cash flows which have exceeded $1 billion annually over the last three years. This provides management with the financial flexibility to repurchase substantial amounts of its common stock while making acquisitions that improve the company’s competitive advantages in the cybersecurity industry. Since the inception of the share repurchase program, Check Point has repurchased nearly $10 billion of its common shares. On the acquisition front, Check Point Software recently acquired Odo Security, hacking its way into a new cloud-based technology that delivers secure remote access for businesses. This will make working from home easier and safer than ever for remote employees.

Cybersecurity in 2021

Check Point Software has made providing solutions for COVID-19 related attacks a top priority for fiscal 2021. Since business lockdowns occurred, there has been a significant escalation in cyber threats. With 81% of enterprises adopting mass remote working and 74% planning to enable remote work permanently, this offers a great opportunity for Check Point. The company is positioned to gain and retain customers which need to deliver secure remote connectivity on a massive scale for their employees.

Check Point Software Technologies checks all of our boxes for a HI-quality, long-term investment given the firm’s innovative leadership, highly profitable growth, secure balance sheet and strong cash flows, while providing essential services for global businesses. Buy.

Editor’s Note: Ingrid Hendershot has been President and CEO of Hendershot Investments, Inc. since 1994. The firm offers personalized investment advisory services to individuals, pension and profit sharing plans, trusts, estates, charitable organizations and corporations or other business entities. The firm offers an investment-related newsletter called “Hendershot Investments,” designed for the long-term investor on a quarterly basis. For more information on the services offered by Hendershot Investments visit www.hendershotinvestments.com.

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