Shares of Entrust Technologies were whacked Tuesday after the company said there is weak demand in Europe and Asia. Entrust's warning could indicate bad news ahead for competitors, analysts said.
Entrust was supposed to be resilient to an economic slowdown, according to analysts.
However, Entrust shares were off $2.78 to $4.50 after the company said it expects a first-quarter loss of 32 cents to 34 cents a share and revenue of $31 million to $32 million.
It had previously forecast a profit in the range of 1 cent to 2 cents a share, excluding acquisition-related costs, and revenue in the range of $50 million to $51 million. First Call had been expecting earnings of 2 cents a share.
Entrust Technologies' (Nasdaq: ENTU) security software is designed to keep private the communication and transactions on corporate intranets. The company uses public key infrastructure (PKI) technology to enable digital signatures and electronic passports that identify computer users.
The profit warning wasn't the first sign of trouble for security stocks. Last week, shares of SafeNet (Nasdaq: SFNT) were more than halved after it announced that first-quarter revenue and earnings will miss Wall Street's estimates. Its shares were off another 49 cents to $10.88 Tuesday.
Also affected by the news were competitors Baltimore Technologies (Nasdaq: BALT), off 38 cents to $2.13, Verisign (Nasdaq: VRSN), down $6.13 to $29.63, and Check Point Software (Nasdaq: CHKP), off $6 to $40.88.
There is weakness across multiple product lines and geographies, Entrust said.
The company said it is also seeing less demand for its products in Asia and in Europe--a statement that is "consistent with comments from competitor Baltimore Technologies," noted Bear Stearns analyst Bob Lam, who continued to rate Entrust "attractive."
Goldman Sachs analyst Anne Meisner said, "Economic uncertainty appears to be dampening demand not only in the domestic market but also within the company's other key geographic operating regions." Meisner slashed her rating on the company to "market performer" from "market outperformer."
Lam said he was holding out for the company's first-quarter earnings conference call on April 24 before taking a stab at estimates.
Merrill Lynch analyst Mark Fernandes, who lowered his rating on the stock to "neutral" from "accumulate," also declined to publish 2001 estimates until after the call.
Most analysts said they saw no good news ahead that could motivate the stock.
Lam was the most optimistic, and managed to find some silver lining in news from interim co-CEO David Thompson that the board is close to selecting a new CEO. Lam also remained bullish on security stocks overall, and noted that "long-term, Entrust is well positioned to emerge as a leading provider of secure e-commerce."