Sourcefire, Inc. (FIRE), Cisco Systems, Inc. (CSCO): This Strategic Network Security Deal Is Worth Watching

Checkpoint Systems, Inc. (NYSE:CKP) has a much lower price-to-sales valuation than both Cisco and Sourcefire. It is trading at around $16.80 per share with a total market cap of around $689 million. The market values Checkpoint at only one time its sales and 13.85 times its trailing EBITDA.

Being a smaller company, Checkpoint might have more room to grow. In order to sustain its market leadership, the company has been developing the next generation of hardware and consumable products. Looking forward, Checkpoint has eyed China, India, and Latin America as potential fast growing markets for international expansion. By expanding its reach into emerging markets, Checkpoint can deliver greater revenue in the future.

With a lot more resources and cash on hand, the acquisition seems more sensible for Cisco than building the product itself. Despite a premium valuation, Cisco will gain access to Sourcefire’s product portfolio and customer base right away. I personally think that with Sourcefire acquisition, Cisco’s leadership position in the network security market will be strengthened substantially.

My Foolish take

Cisco has made the right choice by acquiring Sourcefire to strengthen the company’s network security business. The acquisition will help Cisco gain Sourcefire’s talents, products, and customer base. Although the deal is expected to slightly dilute Cisco’s earnings in fiscal 2014, the potential synergy between Sourcefire and Cisco’s network security business should help improve Cisco’s sales and bottom line in the long run.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Sourcefire.

The article This Strategic Network Security Deal Is Worth Watching originally appeared on Fool.com and is written by Anh HOANG.

Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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