Portal Software halved on earnings worries

Analysts were mixed on Portal Software's earnings, but generally agreed the long-term prospects look good. Investors, however, voted with their dollars as shares were more than halved to a new 52-week low.

In early trading, shares of Portal Software (Nasdaq: PRSF) were down 9.88 to 8.75.

The company doubled the Street estimate in its third quarter Tuesday, posting a profit of $7 million, or 4 cents a share, on sales of $72 million.

Analysts were mixed. Many analysts lowered estimates for Portal because this was the first quarter in its brief history that the company didn't blow out expectations. Nevertheless, some analysts maintained “buy” ratings and cited the company's strong long-term prospects and valuation.

Merrill Lynch cut Portal’s intermediate term rating to “accumulate” from “buy.” Goldman Sachs also removed the company from its recommended list and gave it a “market performer” rating. But Chase H&Q, CIBC Oppenheimer and CS First Boston reiterated their current “buy” ratings.

Hampton C. Adams, an analyst at CIBC Oppenheimer, lowered his estimates for Portal, but maintained the company's "strong buy" rating based on valuation. Adams acknowledged there wasn't any catalysts to move shares, but said he believed in Portal's business model.

Adams said Portal was in line with his projections, but slowing growth in North America was cause for some concern.

"While no single vertical market in the US makes up a significant portion of Portal's revenue, we believe that the combination of weakness in the ISP, CLEC and DLEC financial markets effected customer providers of Internet-based buying decisions during the quarter," he said in a research note.

But Adams added that Portals diverse customer base and strong growth in international markets "insulates it from major side shocks."

CS First Boston sang a similar tune and maintained a "buy" rating. "The overall health of the billing and customer care industry remains solid and we believe PRSF is well-positioned to register a better quarter in 4Q01," said the firm in a research note.

Merrill Lynch analyst Mark Fernandes downgraded Portal, but agreed with the other analysts about the long-term view. “Investors could make a valuation argument based on 2001 growth rate of 120 percent,” he said.

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