Ten days after Check Point Software Technologies (Nasdaq:CHKP) revealed its third-quarter results, Bank Hapoalim has updated its research on the network security provider.

Check Point is priced at a premium compared with peer companies, analyst Racheli Gershon says, and downgraded the company from Buy to High-Risk Hold. She also lowered its 12-month price target from $55 to $37, still almost 30% above Check Point's starting level today.

She predicts that sustained global slowdown, and IT spending cuts, coupled with intensifying competition in the virtual private networks sector will continue to hamper Check Point's growth in the quarters to come.

These factors will also make it hard for the Israeli company to sustain its gross and operating profit levels, Gershon wrote.

The company's Q3 results complied with its lowered guidance, Gershon noted, with revenue of $118 million and profit of 29 cents per share.

Check Point itself blamed its income erosion to the September 11 terror attacks on the U.S., which it claims reduced revenue by $15 million to $20 million.

Meanwhile, its rivals in VPNs include Cisco Systems (Nasdaq:CSCO), Verisign (Nasdaq:VRSN), Nortel (NYSE:NT) and Symantec Corporation (Nasdaq:SYMC). But there are also plenty of minnows starting to bite off bigger chunks of the market, Gershon says. One such firm breathing down Check Point's neck is NetScreen, which recently revealed intentions to raise $92 million on Nasdaq.

Check Point has advantages against its rivals beyond its technology, Gershon estimates. It has alliances with hardware leaders such as Nokia (NYSE:NOK), Compaq Computer Corp. (NYSE:CPQ) and Hewlett Packard (NYSE:HWP). She expects Check Point to expand this network of relationships in order to sustain its edge.

Another upside is the company's launch during the third quarter of its next-generation Internet security line of products, says Gershon. In July the new version contributed 5% of sales, rising to 10% in August and 15% in September. The growth trend should continue in the fourth quarter, she estimates.

Bank Hapoalim estimates Check Point sales at $528.8 million for 2001, up 24.3% from 2000. It predicts $1.24 earnings per share, almost 50% more than last year.