Rational Software hops on earnings, outlook

Rational Software shares moved up 6 3/16, or 9 percent, to 73 15/16 Thursday after it topped analysts' estimates in its fourth quarter, pocketing $34.9 million, or 35 cents a share, on sales of $180.4 million.

First Call consensus expected it to return a profit of 31 cents a share in the quarter.

On Thursday, CS First Boston added fuel to the fire, raising its 12-month price target from $71 a share to $137 a share.

In the year-ago quarter, Rational (Nasdaq: RATL) made $21 million, or 23 cents a share, on sales of $125 million.

Rational Chairman Paul Levy, in an interview with ZDII, said he was bullish on the company's strategy of offering e-development software.

Levy said the company is viewed as the Switzerland of the development world because e-business, Net infrastructure and device companies all use Rational's tools to develop software quickly. Net infrastructure companies such as Cisco (Nasdaq: CSCO), IBM (Nasdaq: IBM), Nortel (NYSE: NT) and Microsoft (Nasdaq: MSFT), Sun Microsystems (Nasdaq: SUNW) and Oracle (Nasdaq: ORCL) are among the company's biggest customers.

Rational also has blue-chip customers such as America Online (NYSE: AOL) and eBay (Nasdaq: EBAY).

Levy said Rational's software was available on all platforms and added that he was comfortable with Wall Street revenue projections of $760 million to $780 million in 2000 and $1.1 billion in 2001. Rational topped Wall Street revenue estimates by $20 million in its latest quarter.

"We sell the picks, shovels and blue jeans for the Internet," said Levy. "We feel we're the best kept secret on Wall Street and our numbers have earned us a spot at the table."

Levy added that Rational will make small acquisitions to round out its product lines, but won't make big purchases that will dilute earnings.

Analysts expect the Cupertino, Calif. company to earn 26 cents a share in its second quarter and $1.19 a share in the fiscal year.

Its shares soared up to a 52-week high of 105 in March after falling to a low of 25 7/8 in August.

Eight of the nine analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.

Larry Dignan contributed to this report.