Check Point Software Technologies (CHKP -1.56%) has been a solid performer on the stock market this year as shares of the cybersecurity specialist have gained close to 18% in 2022.
That's an impressive performance, especially considering the brutal sell-off in tech stocks this year that has caused a 24% decline in the Nasdaq-100 Technology Sector index. Check Point's stock market rally could get a nice shot in the arm when the company releases its 2022 first-quarter earnings report on Wednesday, April 27. Let's look at what Wall Street is expecting from Check Point's quarterly report.
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Check Point Software should deliver steady growth once again
According to the guidance issued by Check Point management in February, the company's Q1 revenue should total somewhere between $517 million and $547 million. Adjusted earnings are expected to land between $1.48 and $1.58 per share.
The consensus analyst estimate calls for the company to earn $1.54 per share in earnings on $534 million in revenue, which is a tad higher than the midpoint of Check Point's guidance range. In the past four quarters, the company has cleared Wall Street's earnings expectations comfortably. What's more, Check Point's actual 2021 earnings exceeded the higher end of the company's expectations, while its actual revenue was at the higher end of its guidance range.
The company had delivered non-GAAP earnings of $1.54 per share in the prior-year period on revenue of $508 million, which would translate into a flat bottom line on a 5.3% increase in revenue, according to consensus estimates. However, it won't be surprising to see Check Point's top and bottom lines grow at a faster pace than Wall Street's expectations thanks to the robust momentum of its subscription business, its big pile of deferred revenue, and efforts to accelerate sales growth.
Check Point was sitting on $1.7 billion worth of deferred revenue at the end of the fourth quarter of 2021, an increase of 15% over the prior year. The company's deferred revenue grew at a faster pace than its actual revenue growth of 6% in Q4 2021. This can be attributed to the growing demand for Check Point's cybersecurity subscription services, with customers paying in advance for subscription plans.
So, Check Point's subscription business is creating a predictable revenue stream for the company. It is worth noting that Check Point's revenue from security subscriptions increased 14% year over year in the fourth quarter of 2021, an improvement over the year-ago period's growth of 10%. Also, subscription revenue accounted for 35% of Check Point's top line of $2.16 billion in 2021. Revenue from products and licenses was flat at $514 million last year.
An increase in contribution from Check Point's subscription business should translate into stronger top-line growth for the company, and the good part is that management is taking steps to ensure that it sells more subscriptions. For instance, Check Point will increase its sales force by 25% this year, which explains the flat year-over-year bottom-line performance that's expected in Q1 as it would translate into higher expenses.
Such a strategy should bear fruit for the company in the long run by helping it attract more customers and long-term subscription contracts. As a result, it is not surprising to see why analysts expect an improvement in Check Point's earnings growth going forward. The company is expected to clock 10%-plus earnings growth in 2023 as compared to this year's increase of just 3.3%.
The stock is still an attractive bet
Check Point Software stock remains attractively valued despite its impressive rally this year. It is trading at 23 times trailing earnings, which is a discount to the Nasdaq-100 index's multiple of 32. The forward earnings multiple of 19.5 is also lower than the index's multiple of nearly 25.
With Check Point's growth expected to pick up the pace and the company trading at an affordable valuation, investors looking to buy a cybersecurity stock may not want to miss the opportunity to buy it before it flies higher and becomes more expensive following its earnings report.
