With worse-than-expected results recently released from cyber security specialist Barracuda Networks (CUDA) , which sent its stock plummeting 35%, investors looking for value should consider Check Point Software (CHKP) - Get Report , which has beaten Wall Street's earnings-per-share (EPS) estimates in ten straight quarters.
Preventing cyber criminals and hackers from stealing sensitive data has been a profitable business for Check Point, which reports third-quarter earnings before the opening bell Monday. The Tel Aviv, Israel-based software giant, which does business with some 98% of Fortune 500 companies, has a firm hold in a thriving cyber security market, making it tough for its competitors to breach.
Check Point shares have surged 95% and 85% over the past five years and three years, respectively, crushing the S&P 500 (SPX) index during both spans. However, 2015 has been a different story. Check Point stock -- up 3% -- continues to outperform the S&P 500. But when compared to the 10% gain in the iShares North American Tech-Software ETF (IGV) - Get Report , CHKP has disappointed.
And it would seem, based on analysts' rising earnings per share estimates, Check Point's business outlook is poised to get better, making its stock, which trades at a P/E of 22 -- only one point higher than the S&P 500 -- one to watch out for in the quarters and years ahead.
Since the start of the quarter, the consensus EPS estimate for both the just-ended quarter and the full year are both up about 1% to 98 cents a share and $4.03 a share, respectively. And during that span, EPS estimate for 2016 has climbed 3 cents to $4.50 a share. Assuming Check Point does earn $4.50 for all of 2016, not only does that imply EPS growth of around 12%, it also drops its forward P/E to 17 -- in line with the S&P 500 index.
By contrast, leading cyber security stocks like Palo Alto Networks (PANW) - Get Report and Fortinet (FTNT) - Get Report , whose shares are up 35% and 43%, respectively, in 2015, trade at forward P/Es of 100 and 60, respectively. If CHKP stock traded at only half the forward P/E of Fortinet (30), it would be valued today at around $135, or 70% higher.
Even when applying a reasonable P/E of 20 to Check Point's 2016 estimates, the stock value still translates to $90 a share, or about 15% higher. In that vein, combined with Check Point's projected five-year annual earnings growth rate of 10%, the shares, which have a consensus buy rating, is one of the better bargains among cyber stocks.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.