Check Point at the Tipping Point

As a security software developer, Check Point Software Technologies (Nasdaq: CHKP  ) must deal with tough competitors, such as IBM (NYSE: IBM  ) , EMC (NYSE: EMC  ) , McAfee (NYSE: MFE  ) , and Symantec (Nasdaq: SYMC  ) . To get an edge, the company is investing heavily -- in internal resources and acquisitions -- to build a comprehensive suite of products.

Management calls this "unified security architecture," and it looks like the company is poised to get results from the strategy. In the fiscal fourth quarter, sales increased 3% to $160.1 million but net income fell from $89.2 million, or $0.36 per share, to $79.5 million, or $0.35. Much of the decline came from the company's charges for its stock option plan.

Check Point is in the midst of integrating some key acquisitions. First, there was the purchase of Protect Data AB, which has security technologies to protect mobile devices and laptops. It is certainly a fast-growing market, with revenues surging 92% in the first nine months of 2006.

Next was the acquisition of NFR Security. This firm allows for real-time threat protection, which is anticipated to be a growth market as well.

These deals are very strategic and promote Check Point's vision of a unified security architecture. This should help generate new business and larger deal sizes. In fact, during the fourth quarter, the company had 11 deals of $500,000-$1 million and four deals over $1 million.

Catalysts?
The good news is that management is still mindful of shareholder value. For instance, in 2006, the company repurchased about $435 million of its own stock. Then again, Check Point is a cash machine. In the fourth quarter, the cash flow from operations came to about $77.7 million.

And with a much broader portfolio of products now, the company has an opportunity to improve its top line. All this could certainly provide some catalysts for the stock in the next year or so.

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Fool contributor Tom Taulli does not own shares of any company mentioned in this article.


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