The stock closed at 33-1/2 on heavy volume of 1.3 million shares.
Thursday's decline of 6-3/4 followed a downgrade from Morgan Stanley Dean Witter. That triggered a wild day, with 3.7 million Check Point shares changing hands and other firewall firms being dragged down by 5 percent as well, including Raptor (RAPT), Secure Computing (SCUR), and Trusted Information Systems (TISX). Secure Computing and Raptor slipped slightly again today, while TIS closed unchanged.
Morgan Stanley's downgrade, which was not copied by other Wall Street analysts who follow Check Point, cited concerns that Cisco Systems (CSCO) and Microsoft (MSFT) would move into Check Point's market sooner than expected. Morgan Stanley also speculated that Microsoft and Cisco would make a joint announcement.
However a Cisco source, confirming that the networking giant is making a network security announcement next week, said that statement is not being made jointly with Microsoft. A Microsoft spokeswoman said it plans no security announcements next week.
Cisco characterized the news as an update on its security strategy, not a major announcement. It said it would describe Cisco's support of the IPSec security standard, partnerships, and work with an auto industry consortium to create Automotive Network eXchange (ANX), which is moving automakers' online communications with 40,000 suppliers from private networks to the Internet.
"The company doesn't comment on rumors, but we don't feel there was substance to the report," Check Point spokeswoman Emily Cohen said yesterday. "The market reacted to speculation rather than fact."
Other Wall Street analysts agreed that investors overreacted to the downgrade and maintained that Check Point was well-positioned to fend off Cisco. Morgan Stanley analyst Chris DePuy left his 1997 and 1998 earnings estimates unchanged, but said investors' fears about Cisco and Microsoft might hurt Check Point's stock price nevertheless.
Prudential Securities responded to the Morgan Stanley downgrade by reiterating its "buy" rating, saying the firewall market is too young to be saturated so soon.
Check Point's price drop "reflects a lack of understanding by many on Wall Street," Prudential Analyst Paul Merenbloom said. Prudential estimates Check Point's annual revenues at about $130 million--too small for multibillion-dollar firms like Cisco and Microsoft to tackle seriously.
Hambrecht & Quist analyst Eric Zimits also kept his buy rating on Check Point.
"Check Point is by far the dominant player in the firewall market," Zimits told Reuters.
Check Point is scheduled to release quarterly earnings on January 22.
Reuters contributed to this report.