Check Point (CHKP)

By both methods, the value today (DCF $244 · Multiples $177) exceeds the market price ($134).

Today — fairly valued: at $134 trades ~23.9% below its value discounted to today (~$177); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($220) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$109.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($134) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.7%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.6 bn of owner earnings in year 5 (vs ~$1.2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/owner-FCF (flujo de caja libre neto de compensación en acciones). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM FY2025 (31-Dec-2025). The model's ocfMargin is net of stock-based compensation (SBC 7.5% of revenue / 17.5% of FCF, material per §3): TTM = (OCF 1,199.4 − SBC 205.6)/Revenue = 36.5%. The tax rate (13.7%) is the average effective rate for FY22-FY24, because the FY2025 effective rate from XBRL (-11.8%) is an artifact: a net tax benefit of US$111.8M from a provision reversal after the settlement with the Israeli tax authority (an actual settlement payment of US$66M). The debt (1.972bn) is the US$2,000M issuance of 0% coupon convertible notes of December 2025, with a carrying value of US$1,972.1M at 31-Dec-2025 (XBRL concept ConvertibleLongTermNotesPayable, verified against the 20-F balance sheet). The cash (3.816bn) is total liquidity: cash 1,800.0 + current marketable securities 689.2 + non-current 1,326.8, which the company presents as liquidity. Year 1 starts at 3.5%, below the historical FY23-FY25 band (3.6%-6.3%): a normalization declared on the published second-quarter 2026 figure (+1.3% year over year, weakness in firewall hardware) with FY2026 earnings guidance maintained unchanged, which suggests a partial recovery within the year, not a permanent floor. Buybacks are modeled with an explicit sharesPath (cash is not accumulated) because the historical pattern is sustained: the share count fell from 126.3M (FY22) to 109.9M (FY25), ~4.5%/year on average.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $220 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $134, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $220 in 5 years and a required return of 4.5% annually, the maximum to pay today is $177. Against the current market price ($134), the margin of safety is 23.9% (trades below the maximum → there is margin) and the total return at that price would be 10.4% annually.

• Entry multiple. The stock trades at 13× on owner-FCF net of stock-based compensation, within the band for mature software.
• Decline in the stock. A decline with an identified catalyst (revenue deceleration) rather than a structural event.
• Estimated return. The base case projects an annualized 5-year return of +10%.
• Margin of safety. It trades at a real discount to value, though short of the required margin of safety.
• Buybacks as a value driver. Sustained buybacks reduce shares outstanding by close to 3% a year, a direct contribution to per-share value beyond operating growth.
• Sensitivity to the terminal multiple. With moderate terminal growth (~5%), the verdict depends more on sustaining the current multiple than on a meaningful expansion.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (86%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs. the 10% bar. Return on invested capital sits comfortably above the 10% bar, even factoring in the additional capital from the new convertible debt.
• Cash generation. Operating cash flow ($1,199.4M in 2025) substantially exceeds reported net income, a sign of earnings quality.
• Stock-based compensation. Stock-based compensation represents 7.5% of revenue and 17.5% of free cash flow, a real cost that is expensed in the valuation metric.
• Minimal capex. Capex is only ~1% of revenue, typical of a capital-light software business.
• Margin compression. The operating margin fell from 34.2% to 30.5% over the last year on higher stock-based compensation and cloud infrastructure.
• Tax artifact of the year. 2025 net income includes a non-recurring $111.8M tax benefit from a provision reversal, following the settlement with the Israeli tax authority; the normalized effective rate used in the valuation is 13.7%.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Check Point's economic driver is deployed gateway volume × subscription adoption rate over that installed base: every gateway sold (product/license) is the entry point to a recurring stream of subscriptions and maintenance. Concentration in a handful of distributors (~39% in the top three) is a commercial risk disclosed by the company itself, not an efficiency choice. No customer or gateway volume metrics are reported in the available filing sections, so the driver is illustrated with the dollar mix of revenue by product line.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Subscription growth. Security subscriptions grew 10.4% year over year in 2025, the business's main engine.
• Recent deceleration. The second quarter of 2026 showed only +1.3% year over year, well below the trend of the last three years.
• Guidance maintained. Despite the soft quarter, the company kept its full-year 2026 earnings guidance of $10.05-$10.85.
• Stalled maintenance. Updates and maintenance grew only 0.6% in 2025, reflecting the maturity of the installed hardware base.
• New artificial intelligence lines. AI security acquisitions (Lakera AI, Cyata) are not yet material to reported revenue.
• Growth relative to peers. Mid-single-digit growth trails higher-profile cybersecurity competitors such as CrowdStrike, Palo Alto Networks and Zscaler.

• Revenue diversification. Three revenue lines —subscriptions (45%), maintenance (35%) and products/licenses (20%)— reduce dependence on a single source.
• Recurrence. Subscriptions and maintenance total 80% of revenue, with high renewal over the installed gateway base.
• Channel concentration. The top three distributors account for ~39% of sales, a dependency risk disclosed by the company itself.
• Geographic exposure. Revenue well distributed: 42% Americas, 46% Europe/Middle East/Africa, 12% Asia-Pacific.
• Geopolitical risk. Headquarters and research and development core in Israel, exposed to ongoing regional instability.
• Product life cycle. Traditional firewall hardware is losing traction while cloud and agentic AI security do not yet offset that in size.
• Acquisition activity. Active, narrow technology acquisition strategy (Veriti, Lakera AI, Cyberint, Cyata, Cyclops) to add capabilities without betting the balance sheet.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.2x
• ✓Interest coverage (EBIT / interest)2077.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 86% of ROIC
• ✓Value creation (ROIC − 10% bar)+59pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.1x
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 7.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. $1.8bn of cash and short-term investments, against $2.0bn of convertible notes issued in December 2025 — a barely negative net debt position.
• Cost of debt. The convertible notes carry a 0% coupon and an effective rate of just 0.28% a year, a virtually costless source of financing.
• Deferred revenue. $1.53bn of current deferred revenue backs the visibility of future subscription and maintenance revenue.
• Short-term liquidity. Total current liabilities ($1.94bn) are covered by available cash without relying on long-term financing.
• Dilution from conversion. If the convertible notes are converted in the future they could dilute existing shareholders, though the cash-settlement mechanism for the principal limits that risk in the near term.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO transition. Nadav Zafrir became CEO in December 2024 with thirty years of technology and security experience, succeeding the founder after more than three decades of continuity.
• Founder alignment. Gil Shwed, Executive Chair, retains 25% of shares — a significant personal capital commitment.
• Rest of the team's stake. Outside Shwed, directors and executives own only 0.4% of shares as a group.
• Capital discipline. No dividend, with consistent buybacks and narrow acquisitions — conservative, predictable capital allocation.
• Use of new debt. The $2.0bn issuance of convertible notes in December 2025 introduces leverage where none existed before, though at nearly no cost (0% coupon).

• Motivated sellers: the second quarter of 2026 showed consolidated revenue of just +1.3% year over year, with pointed weakness in firewall hardware, and the market sold the stock even though the company kept its full-year earnings guidance unchanged.
• The business keeps generating cash and buying back shares at a high pace (~$1.4bn in 2025), but grows more slowly than higher-profile cybersecurity peers (CrowdStrike, Palo Alto Networks, Zscaler), which reduces appetite from growth-oriented buyers.
• No regulatory event, litigation or additional guidance cut was found in the filings behind the stock's decline: the catalyst identified is the revenue growth deceleration of the quarter itself, not a new structural problem.

The combination of a soft growth quarter with sustained earnings guidance is consistent with motivated sellers reacting to the revenue print rather than with a broken business: the subscription base keeps growing at double digits and cash generation did not deteriorate. The risk is that the deceleration stops being a hardware-specific event and spreads to subscriptions.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-23% total): the margin of safety protects the downside. The bull (+19%/year, +137% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Competitive intensity. Cisco, Fortinet, Palo Alto Networks, CrowdStrike, Zscaler and Microsoft compete with greater resources and broader artificial intelligence portfolios.
• Israel geopolitical risk. Headquarters and the research and development core are located in Israel, exposed to ongoing regional instability.
• Distribution concentration. The top three distributors account for ~39% of sales.
• Generative artificial intelligence competition. Large language model providers with cybersecurity capabilities are an additional emerging source of competition.
• New convertible debt. Servicing and eventual conversion of the $2.0bn notes could dilute shareholders or pressure the stock price.
• Revenue deceleration. Growth fell to +1.3% year over year in the second quarter of 2026, with the risk that it extends beyond firewall hardware.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 69% above the 10% bar, but the margin is limited (+24%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 2.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 69% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +19%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: switching costs, intangibles, network effects, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (5%) — the story squares with the numbers.