With each successive data breach scare that’s hit corporate America in recent weeks, from JPMorgan Chase & Co. to Apple Inc. and then Home Depot Inc., the shares of an Israeli cyber-security giant have bounced higher.
Check Point Software Technologies Ltd. (CHKP), the world’s second-largest network security company, reached a 13-year high of $71.99 on Sept. 5 as investors anticipated the spate of cyber-attacks will fuel demand for its services. The stock climbed 1.4 percent last week, extending its four-week rally in New York trading to 9.4 percent.
While smaller rivals like Palo Alto Networks Inc. (PANW) and FireEye Inc. (FEYE) focus more specifically on the kind of data security used to prevent the recent attacks, Check Point has positioned itself to tap into the pickup in this business too. Companies’ focus on improving cyber-security has been building since Target Corp. suffered the biggest retail hack in U.S. history in December.
“Every time Target or Home Depot or a nuclear power plant or even the U.S. government is breached and it’s in the news, that’s a driver for this market,” Brad Curran, an analyst at consulting firm Frost & Sullivan in San Antonio, Texas, said by phone Sept. 3. “This is just the beginning.”
Corporate spending on advanced security threats will grow at a 42 percent compound annual rate to $1.4 billion by 2018, adding to a $34 billion security market worldwide, according to Bloomberg Intelligence data.
Celebrities Hacked
James Rivas, a spokesman for Check Point in San Francisco, declined to comment on the share performance or business opportunities stemming from the data breaches.
Home Depot’s probe came a week after Bloomberg News reported that JPMorgan, which vowed earlier this year to spend a quarter-billion dollars on cyber-security annually, and at least four other banks were targeted by hackers in a coordinated attack. Celebrities relying on Apple’s iCloud service to store photos also had nude pictures stolen and posted online in recent days.
Sales at Tel Aviv-based Check Point are forecast to grow 6.3 percent this year to $1.48 billion, compared with a 3.8 percent increase in 2013, according to the average estimate of 26 analysts surveyed by Bloomberg.
While Check Point’s legacy firewall business is designed to repel more traditional hacking threats, it’s been able to keep up with new entrants’ technology to fight advanced persistent threats, safeguard data centers and protect cloud-based infrastructure, said Jonathan Ho, a Chicago-based analyst at William Blair & Co.
Advanced Attacks
“The company uses more of a fast follower strategy,” Ho said by phone Sept. 4. “If they see something that seems to be gaining traction, they can deploy research and development to copy the solution, or make an acquisition at a reasonable price so they can maintain the high level of profitability.”
Check Point won’t see the revenue growth of companies like Palo Alto Networks and FireEye, which focus solely on advanced cyber-attacks, said Mandeep Singh, an analyst with Bloomberg Intelligence in New York.
Sales at Milpitas, California-based FireEye will soar 165 percent this year to $428 million, and Palo Alto Networks will increase sales by 47 percent to $581 million, according to analyst estimates compiled by Bloomberg.
“Check Point is mature, they have their legacy offering which is the majority of their revenue,” Singh said by phone from New York Sept. 5. “The advanced security is still a very small portion of what they do. FireEye and Palo Alto had solutions before Check Point did.”
Increased Spending
Check Point has rallied 12 percent this year, lagging the 55 percent surge in Santa Clara, California-based Palo Alto Networks, co-founded by Nir Zuk, a former Check Point engineer. FireEye, which has yet to turn a profit, is down 27 percent after failing to recover from a selloff in technology shares earlier this year.
Check Point trails Cisco Systems Inc. in the global network security market, according to Synergy Research Group, which names Symantec Corp. as the third-largest company in the market.
The recent attacks mean companies will be spending more to defend against advanced information security threats over time, Ho said.
“Companies that are gearing up for the holiday season, the last thing they want to run into is a repeat of what happened with Target last year,” he said. “The cyber-security problem is far from solved at this point.”
Source: Bloomberg
