Check Point Software (CHKP) Q3 Earnings: Will It Surprise?

Check Point Software Technologies Ltd. (NASDAQ:CHKP) is set to report third-quarter 2016 results on Oct 31. Last quarter, the company posted in-line earnings. Notably, Check Point Software has outperformed the Zacks Consensus Estimate thrice while it has matched the same once in the trailing four quarters and has an average positive earnings surprise of 4.22%.

Let's see how things are shaping up for this announcement.

Factors to Consider

The heightened worries over increasing price competition in the cybersecurity space due to Fortinet Inc.’s (NASDAQ:FTNT) recent guidance cut have been swept away by better-than-expected results delivered by Proofpoint last week. This signifies that the challenges raised by Fortinet were company specific and are unlikely to impact the industry.

Therefore, we believe that Check Point Software will continue to benefit through strong demand for cybersecurity solutions. Note that the financial well-being, brand image and reputation of enterprises and governments are always exposed to the risk of cyber threats. Consequently, cybersecurity has become a mission-critical, high-profile requirement.

With rapid technological advancement, organizations are increasingly adopting the “bring your own device” (BYOD) policy to enhance employee productivity with anytime/anywhere access. This trend, in turn, calls for stricter data security measures.

Moreover, various independent research firms forecast strong demand ahead. According to a Markets and Markets report, worldwide cyber security spending will reach $101 billion in 2018 and $170 billion by 2020. Gartner had earlier revealed that IT security spending peaked to $75 billion in 2015.

We believe that Check Point Software is well positioned to capitalize on this opportunity and this may reflect in the company’s to-be-reported quarterly results.

Furthermore, the rapid adoption of Check Point’s data center appliances and the continuous enhancements in data center product lines are expected to provide adequate support to revenue growth. Additionally, the company’s continuous share buybacks bode well for investors.

However, competition from Cisco, Juniper Networks (NYSE:JNPR) and Fortinet, an uncertain economic environment and currency headwinds remain concerns.

Earnings Whispers

Our proven model does not conclusively show that Check Point Software will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 97 cents. Hence, the difference is 0.00%.Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Check Point Software carries a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Boyd Gaming Corp. (NYSE:BYD) , with an Earnings ESP of +16.67% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NVIDIA Corp. (NASDAQ:NVDA) , with an Earnings ESP of +8.93% and a Zacks Rank #3.

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