HSBC

(NYSE:HBC) has belatedly initiated coverage of data security company

Check Point Software Technologies

(Nasdaq:CHKP) with a Buy rating and a price target of $80.

Its target was 15% above Check Point's market price on May 2, when the report was released.

Analysts Will Manuel and Dan Harverd say that Check Point's target market was worth $875 million in 2000, and should grow to $5 billion in 2005 based mainly on expected growth in wireless and broadband applications.

The analysts commend Check Point for successfully translating its firewall leadership to the virtual private network market. The analysts appreciate the company's strategy of providing solutions to all Internet connections, such as cables, broadband and digital subscriber line, and to all types of hardware, such as personal digital assistants and other mobile products.

Manuel and Harverd say that because Check Point's market is characterized by high growth, it will have to compete with giants such as

Cisco Systems

(Nasdaq:CSCO),

Nortel

(NYSE:NT), and

Microsoft

(Nasdaq:MSFT). Last year Cisco acquired Altiga Networks for $567 million to get into VPN solutions itself.

But Check Point founder, chairman, president and CEO Gil Shwed recently said that the competition from Cisco's direction has substantially declined.

Check Point is financially sounder than peer companies, including the minnows among them. The analysts compliment Check Point for being one of the few tech companies that not only boasted growth between the fourth quarter of 2000 and the first quarter of 2001, but also beat analyst forecasts.

Check Point did not change its guidance for 50% growth this year, revenues and profit alike. But the analysts estimate that it will only achieve revenues and profit growth of 46.7%.

Profit expected to jump 61% in 2001

The analysts and Check Point agree however on sales, which should climb to $628.3 million in 2001.

The trend that characterized the first quarter, of consistent but moderate growth, is expected to continue in the second quarter too. Revenues are expected to rise mildly to $150.8 million, but the analysts expect revenue growth to pick up toward year-end.

The analysts expect second-quarter earnings of 33 cents.

Check Point happily surprised investors after its forecast of 50% growth proved conservative in the first quarter. For the future, Manuel and Harverd expect the company's net profit to grow by at least 61%. They predict that Check Point will post EPS of $1.35 for 2001.

Manuel and Harverd write that the share's price-earnings-growth ratio is 1.1, which they deem to be conservative. They prefer to price the company using the discounted cash-flow (DCF) model.

The analysts' price target of $80 translates to PEG of 1.2, which suggests that their approach is conservative, because the average among peer companies is 1.9. The analysts conclude that the company's valuation is attractive.

CIBC Oppenheimer slashes target to $90

CIBC Oppenheimer

has also updated its research on Check Point. CIBC slashed its target from to $90 base on a multiple of 50 times expected profit in 2002.

Its previous target was $133, or $200 before the split. The investment house reiterates its Strong Buy rating.

CIBC says that Check Point's first quarter results are good, but they did not beat forecasts. Analysts Avivit Mannet-Kalil and Shaul Eyal note however that Check Point's operating and net profits are exceptional among peer firms.

The analysts write that Check Point's business situation seems excellent. But the shadow cast by the market slowdown is threatening even to strong, profitable companies.

Mannet-Kalil and Eyal believe that even if Check Point's growth slows in coming quarters, its leading position and the market's long-term potential will restore its rapid growth as soon as the market begins to recover.