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Security software maker Rainbow pounded after warning

Investors don't find a silver lining in the company's fourth-quarter profit warning, as they send shares of the Internet security software developer down 25 percent.

    Investors didn't find a silver lining in Rainbow Technologies' fourth-quarter profit warning Monday, as they sent shares of the Internet security software developer down 25 percent.

    Shares were down $2.91 to $8.53 in late trading.

    Late Friday, Rainbow warned that it will return a profit of between 10 cents and 14 cents a share in its fourth quarter, well below the First Call consensus estimate of 18 cents a share.

    "The economic slowdown resulted in lower-than-expected sales of Rainbow's secure software distribution products and Internet performance enhancement solutions," the company said in a statement. Rainbow said a higher level of investment and currency losses than anticipated also contributed to the earnings revision.

    On Monday, SunTrust Equitable Securities analyst Sean Jackson cut the stock from a "strong buy" rating to "neutral," saying it was too early to make any sweeping judgments about the company or its stock until after its Feb. 28 earnings report.

    Tomas Isakowitz, an analyst at Janney Montgomery Scott, said that while the company's SSL security software has promise, the slowing economy and reduced information technology spending by key PC makers such as Hewlett-Packard has taken its toll.

    "They have a compelling story in their SSL line, but obviously it's not growing at the rate they had hoped," he said. "Rainbow has four different lines of business. That's great when business is booming and the economy is doing well, but it becomes much more of a challenge to manage these four lines when the economy slows."

    Isakowitz rates the stock a "hold" and maintains a 12-month price target of $12 a share.

    In its release, Rainbow executives said they were optimistic concerning the company's 2001 operating results, but cautioned that its growth for the next two quarters could be slower because of current market conditions.

    Last quarter, Rainbow posted a profit of $4.6 million, or 17 cents a share, on sales of $43.7 million. Analysts are forecasting a profit of 80 cents a share in fiscal 2001 on sales of $210.5 million.

    The stock peaked at $27.06 in November before slipping to Monday's 52-week low of $8.50. Two of the four analysts following the stock rate it a "buy," and the other two rate it a "hold."