Initial Valuation of Check Point Software and Initial Buy

I am almost done with my DCF Valuation of Check Point Software Technologie (CHKP). I will do a follow-up post with the detailed analysis the week after next week, since I will be on holidays. Here are a few quick observations and facts about the Company

  • Industry: Information Technology – Network Security. long-term tailwinds could well be there.
  • Rock-solid Balance Sheet with no Financial Debt but more than USD 4 bn Cash & Equiv. (rather constant over time)
  • Valuation: Market Cap of 17 bn USD with a P/E of 20.5x and a Cash adj. P/E of 17.3x, using est. GAAP ’19 EPS of 5.46 USD.
  • Generating FCF (as reported) of about 1bn annually, it is a highly cash generative business
  • Capital Allocation: Cash going mostly into Share Buy Backs (SBBs) and some smaller M&A activity. No Dividends.
  • Shares Outstanding (Diluted) declined from 192m to 159m; currently at 152.2m. High Share based Compensations annually
  • Owner Perspective: Company Insiders own c. 20% of Shares:
    • Gil Shwed (CEO): 16%
    • Marius Nacht (Co-Founder): c. 4%
  • Revenue: Grew profitable from 1.5bn Sales in 2014 to 1.9bn in 2018, with
    EPS (GAAP) grew from 3.43 to 5.15 USD.
  • The Company’s stock is traded on the NASDAQ Stock Market under the symbol CHKP; WKN 901638; ISIN IL0010824113)

Anyway, I came to the conclusion that CHKP currently trades at about 50% of my estimated base case Fair Value per Share, thus I am going to initiate a Starter Position, planning on buying more shares at a later research stage.

Starter Positions: After performing initial research and coming to a conclusion that a stock is a buy, we will only take a very small position.

https://intrinsicinvesting.com/2019/07/18/position-sizing-research-stages/

The concept to base position sizes on research stage (and other factors) makes sense to me. If you are interested I strongly recommend to read Ensembles position sizing series at intrinsicinvesting.com.

I hope you liked this little update and primer on Check Point Software. Stay tuned for my soon to come follow-up post with the detailed DCF Valuation of CHKP.

Best, s4v