Check Point Software Technologies Ltd. (CHKP) and FireEye, Inc. (FEYE) are established players in the cybersecurity space. Headquartered in Tel Aviv, Israel, CHKP is a leading provider of cyber security solutions to governments and corporate enterprises worldwide. The company offers a wide range of solutions, which include network security, endpoint security, data security, and management solutions. California-based FEYE provides cybersecurity solutions and services. It offers the Helix Security Platform, Mandiant security instrumentation, as well as endpoint, network, and email security products.
Because the continued adoption of hybrid working models is increasing the risk of cyberattacks, business leaders worldwide are embracing the need for robust cybersecurity measures. According to Grand View Research, the global cybersecurity market is expected to grow at a 10.9% CAGR between 2021- 2028. So, it’s no surprise that investors are betting on several cybersecurity stocks to capitalize on the growing demand. Investors' interest in the cybersecurity space is evidenced by First Trust NASDAQ Cybersecurity ETF’s (CIBR) 32.7% gains over the past nine months.
While FEYE has gained 56.8% over the past nine months, CHKP has returned 1.3%. However, in terms of past three months’ performance, CHKP is a winner with 5.8% returns versus FEYE’s 5.2%. But which of these two stocks is a better pick now? Let's find out.
Click here to checkout our Cybersecurity Industry Report for 2021
Latest Movements
On April 28, 2021, CHKP announced four major new initiatives in its global Check Point Partner Growth Program to increase value to partners and accelerate their access to benefits and rewards for sales-generating activities through closer collaboration with Check Point.
On June 2, 2021, FEYE announced that it had agreed to sell its FireEye Products business, including the FireEye name, to a consortium led by Symphony Technology Group (STG) in an all-cash transaction for $1.2 billion.
Recent Financial Results
CHKP’s revenue for the first quarter, ended March 31, 2021, was $507.60 million, up 4.3% from the prior-year quarter. Its non-GAAP net income increased 2.6% year-over-year to $211.20 million, and its non-GAAP EPS for the quarter declined 8.5% year-over-year to $1.54.
For its fiscal first quarter, ended April 3, 2021, FEYE’s net sales were $1.77 billion, representing a 7.1% increase from the prior-year quarter. The company’s net income for the quarter was $244 million, up 23.9% year-over-year. Its non-GAAP EPS increased 9.6% year-over-year to $246.34.
Past and Expected Financial Performance
CHKP’s revenue has grown at 3.7% CAGR over the past three years. The company’s annual revenue is expected to increase 3.5% in 2021. CHKP’s EPS is expected to increase 6.5% in 2022. Also, CHKP’s EPS is expected to grow at a 5% rate per annum over the next five years.
In comparison, FEYE’s revenue grew at a 6.6% CAGR over the past three years. Analysts expect FEYE’s annual revenue to increase 8.6% in 2021. Its EPS is expected to increase 29% in 2021. Also, FEYE’s EPS is expected to grow at a 91.3% rate per annum over the next five years.
Profitability
CHKP’s $2.09 billion trailing-12-month revenue compares to FEYE’s $962.21 million. And CHKP is more profitable, with an 89.25% gross profit versus FEYE’s 64.98%.
However, CHKP’s EBIT margin and ROA of 44.03% and 10.14%, respectively, compare favorably with FEYE’s negative values.
Valuation
In terms of forward PEG non-GAAP, FEYE is currently trading at 3.30x, 31.5% higher than CHKP’s 2.51x. And in terms of forward EV/EBITDA, FEYE’s 27.64x is 141% higher than CHKP’s 11.47x.
So, CHKP is the more affordable stock.
POWR Ratings
CHKP has an overall B rating of B which equates to a Buy in our proprietary POWR Ratings system. However, FEYE has an overall rating of C, which represents neutral. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FEYE has a C grade for Value. This is reflected in its 27.64x forward EV/EBITDA, which is 63.5% higher than the 16.91x industry average. CHKP has a B grade for Value, consistent with its 11.47x forward EV/EBITDA, which is 32.20% lower than the 16.91x industry average.
FEYE has a grade of C for Quality. This is reflected in its negative value for ROA, which compares to a 3.19% industry average. CHKP has an A grade for Quality, which is consistent with its 10.14% ROA, which is 217.90% higher than the 3.19% industry average.
Of the 24 stocks in the Software-Security industry, CHKP is ranked #5 and FEYE is ranked #13.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both CHKP and FEYE for Momentum, Stability, Sentiment and Growth. Click here to see the additional ratings for FEYE. Also, get all CHKP’s ratings here.
The Winner
With consistent technological advances, the demand for cybersecurity solutions is expected to continue rising. Buy FEYE’s weak financials and bleak near-term prospects don’t justify its current price level. So, being relatively cheaper and having solid growth prospects, we think CHKP is a better buy.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the Software-Security industry.
Click here to checkout our Cybersecurity Industry Report for 2021
CHKP shares were trading at $119.39 per share on Wednesday afternoon, up $0.48 (+0.40%). Year-to-date, CHKP has declined -10.17%, versus a 13.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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