RSA Security Soars After Breaking a Losing Streak

The security software firm posted its first profit after six losing quarters.
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RSA Security

(RSAS)

was on a roll Friday afternoon, soaring as much as 29% on news that the company had returned to profitability after a six-quarter losing streak.

In recent trading, shares of the security software vendor were up $1.86, or 28%, to $8.53.

RSA's revenue for the first quarter of 2003 was $61.3 million, compared with $55.5 million a year earlier. Net income was $1.7 million, or 3 cents per diluted share, compared with a net loss of $13.7 million, or 24 cents a share in 2002, according to generally accepted accounting principles.

Both profit and revenue exceeded Wall Street's expectations. Analysts polled by Thomson Financial/First Call had expected the company to earn a penny a share on revenue of $59.3 million.

The last time RSA recorded a profit was in June of 2001, when it earned 22 cents a share.

Several sell-side firms upgraded RSA Friday morning, including Legg Mason, which bumped it to buy from hold and set a target price of $10 a share. "While we still must see an uptick in IT spending before RSA can start to show more leverage in its operating model, we believe the company has demonstrated stability and consistency in its business," wrote Legg Mason analyst Todd Weller. (Weller's company does not have an investment banking relationship with RSA.)

The company increased cash in the first quarter by $12.4 million to $115.4 million, and added 900 new customers.

Unlike

Network Associates

(NET) - Get Report

, which announced disappointing

results Thursday, RSA has little or no exposure in the consumer market; it specializes in enterprise security, encryption and access.

Guidance for the current quarter straddled analysts' expectations. The company expects second-quarter revenue to range from $58 million to $63 million, compared with Wall Street's consensus of $61.35 million. GAAP earnings per share, the company projects, will range from break-even to 4 cents a share. EPS consensus is for earnings of 3 cents a share in the quarter, as gathered by Thomson Financial/First Call.

Coviello said business was boosted by strong sales to health care providers needing to boost security to comply with new federal privacy and security regulations. Interestingly, there was some dropoff in expected defense-related spending in late March. "I guess the Pentagon had a few other things to do (as the war started)," he said.