Fortinet against Check Point software
The increased exposure to large-scale data breaches and ransomware attacks during the rapid digitization of operations and the growing adoption of cloud computing in hybrid working has led many companies to increase their spending on cybersecurity, allowing cybersecurity companies to benefit. Additionally, increased business and government investment in cybersecurity due to growing concerns about cyberattacks of Russia due to escalating sanctions against the nation should benefit the cybersecurity industry.
Investor interest in this space is evident in Global X Cybersecurity ETFs (BUG) Gains of 10.7% in the last three months compared to the SPDR S&P 500 Trust ETFs (TO SPY) negative returns. The global cybersecurity market is expected to grow at a pace 12% CAGR to $500.70 billion by 2030.
Check Point Software Technologies Ltd. (CHKP) and Fortinet, Inc. (FTNT) are two leading players in the field of cybersecurity. CHKP develops, markets and supports a range of computer security software and hardware products and services worldwide. It offers a portfolio of network security, data and endpoint security and management solutions and sells them through distributors, system integrators, OEMs and managed security service providers. FTNT provides comprehensive, integrated, and automated cybersecurity solutions and offers security subscriptions, technical support, and professional and training services worldwide. It serves channel partners and customers in telecommunications, technology, financial services, education, retail, manufacturing and healthcare.
CHKP is up 19.73% over the past year and FTNT is up 68.67% over the same period. Which of these stocks is a better choice now? Let’s find out.
Click here to view our Cybersecurity Industry Report for 2022
On April 7, 2022, CHKP announced plans to host control room facilities and cybersecurity services from its Rakia Mission Center at CHKP Headquarters in Tel Aviv to support the Israeli Rakia space mission to the Space Station. (ISS), which should last 8 to 10 days. The center will include a control room from which scientists, artists and educators can monitor the activities of Israeli astronaut Eytan Stibbe and allow them to make any necessary changes to the experiments in real time while interacting directly with the control room of the ISS in the United States. This will allow CHKP to gain greater recognition in the industry.
On March 16, 2022, five new service providers – Etihad Atheeb Telecom Company “GO”, Microland, Radius Telecoms, Inc., Spectrotel and TIME dotCom – added FTNT’s Fortinet Secure SD-WAN to their managed service portfolios. FTNT’s industry-leading secure SD-WAN solution and its integration with Fortinet Security Fabric helps MSSPs deliver a simplified network architecture with accelerated security to achieve operational efficiencies from the data center to multi-cloud environments and SaaS locations. As the enterprise attack surface increases, given the continued digitization of various companies’ adoption of work-from-home structures, FTNT’s product offering is expected to see strong demand in the coming months.
Recent financial results
CHKP’s total revenue for its fourth quarter of fiscal 2021 ended December 31, 2021 increased 6.3% year-over-year to $599.10 million. The company’s non-GAAP operating profit was $284.50 million, down slightly from the prior year period. Its non-GAAP net income was $294 million, down 2.3% year-over-year. CHKP’s non-GAAP EPS rose 3.7% year-over-year to $2.25. The company had $271.90 million in cash and cash equivalents as of December 31, 2021.
For its fourth quarter of fiscal 2021 ended December 31, 2021, FTNT’s total revenue increased 28.8% year-over-year to $963.60 million. The company’s gross profit was $735.30 million, up 26.6% from the prior year period. Its operating profit was $274.70 million, indicating a 24.9% year-over-year improvement. While its net income rose 17.3% year over year to $205.80 million, its non-GAAP EPS rose 16% to $1.23. As of December 31, 2021, the company had $1.32 billion in cash and cash equivalents.
Past and expected financial performance
Over the past three years, CHKP’s revenue, EPS and free cash flow grew at CAGRs of 4.2%, 5.7% and 2.1%, respectively.
CHKP’s EPS is expected to increase 3.3% year-over-year in fiscal 2022, ending December 31, 2022, and 10.2% in fiscal 2023. Its figure revenue is expected to grow 5.7% in fiscal 2022 and 5.1% in fiscal 2023. Analysts expect the company’s EPS to grow at a rate of 7.7% per year over the next five years.
FTNT’s revenue, EPS and free cash flow grew at CAGRs of 22.8%, 23.7% and 19.8%, respectively, over the past three years.
Analysts expect FTNT’s EPS to grow 24.3% year-over-year in fiscal 2022, ending December 31, 2022, and 20% in fiscal 2023. Its figure revenue is expected to grow 28.6% year-over-year in fiscal 2022 and 20.4% in fiscal 2022. Analysts expect the company’s EPS growing at a rate of 17.5% per year over the next five years.
In non-GAAP futures PEG terms, FTNT is currently trading at 3.40x, 3% higher than CHKP’s 3.30x. In terms of EV/Forward Sales, CHKP’s 6.30x compares to FTNT’s 12.03x.
CHKP’s revenue over the last 12 months is almost 1.5 times that of FTNT. However, CHKP is more profitable, with 88.5% Gross margin against 76.6% for FTNT.
Additionally, CHKP’s EBITDA margin and net profit margin of 42.9% and 37.6% compare to FTNT’s of 21.9% and 18.2%, respectively.
While CHKP has an overall rating of B, which translates to Buy in Our Own POWR Rankings system, FTNT has an overall rating of C, equivalent to Neutral. POWR ratings are calculated by considering 118 separate factors, each weighted to an optimal degree.
Both CHKP and FTNT have an A rating for quality, which is consistent with their industry-leading profitability ratios. CHKP’s trailing 12-month leveraged free cash flow of 37.6% is 268.2% higher than the industry average of 10.2%. FTNT has a 27.1% leveraged free cash flow margin over 12 months, which is 165.4% higher than the industry average of 10.2%.
CHKP has a C rating for value, reflecting its slightly above industry valuation ratios. CHKP’s forward EV/EBITDA of 13.86x is 11.4% above the industry average of 12.45x. FTNT’s D rating for value is in line with its overvaluation. FTNT has a forward EV/EBITDA of 43.34x, 248.2% above the industry average of 12.45x.
Of the 31 shares of Software – Security industry, CHKP is ranked #4, while FTNT is ranked #9.
Beyond what we stated above, our POWR rating system also rated CHKP and FTNT for sentiment, stability, momentum and growth. Get All CHKP Ratings here. As well, Click here to see additional POWR ratings for FTNT.
The growing demand for cybersecurity solutions to protect data amid concerns about large-scale cyberattacks is making the industry outlook bright. Therefore, the top players in this space, CHKP and FTNT stand to benefit. However, a relatively lower valuation and higher profitability make CHKP a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall POWR rating of Buy or Strong Buy. Click here to access top rated stocks in the Software – Security sector.
Shares of CHKP remained unchanged in after-hours trading on Wednesday. Year-to-date, CHKP has gained 23.04%, compared to a -6.08% rise in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors, so they can succeed in the stock market. After…