Secure Computing CEO Buying Stock

From InsiderScore: After his company cut its second-quarter outlook and then reported better-than-expected earnings, the chief executive officer of Secure Computing (SCUR) stepped up with his first open market stock buy in two years. John McNulty, the chairman, president, and CEO since July 1999, bought 53.1K shares at an average price of $5.61 on July 31st, increasing his holdings to 310.9K shares. McNulty, who holds options for about 1.178M shares, last bought in August 2004, when he picked up 10K shares at $6.00. Earlier this year, McNulty was awarded 62.5K shares of restricted stock.

In 2005, McNulty was paid a salary of $377.5K and a bonus of $430.76K, and he was granted options for 162K shares at $9.00. Based on his current holdings, if McNulty exercised all of his options, he would own about a 2.3% stake in SCUR. The company has no stock ownership guidelines.

A provider of network security products, SCUR made some news last month when it cut its second-quarter earnings and revenue outlook and announced a deal to acquire messaging security firm CipherTrust for $273.6 million in cash and stock. The company blamed its Q2 shortfall on one customer pushing back an order until Q3 and an unnamed European customer's inability to close a deal through a reseller because its executives were out of the officer watching the World Cup. In the wake of the earnings warning and acquisition announcement after the bell on July 11th, shares of SCUR promptly fell -38%, and eventually hit a three-year low of $4.82 on July 13th.

Last week, SCUR reported its Q2 results, surprising analysts and investors by reporting earnings that were above the forecast offered just two weeks earlier.

For Q2, SCUR reported net income of $5.7M, or 11 cents per share, up from $4.9M, or 13 cents per share, a year earlier. Excluding items and stock-based compensation expense, SCUR earned 8 cents per share, which was a penny better than analysts expected, and above the 5 cents to 6 cents EPS the company forecasted on July 11th. Sales, meanwhile, rose 48% year over year, but fell -9% sequentially to $38.7M, which was just shy of the consensus forecast and within the range SCUR forecasted when it reduced its outlook.

"Although revenue for the quarter was short of plan, it was not due to a lack of market opportunity for our products," said McNulty. "Our revenue shortfall was due to a combination of a larger-than-normal number of orders slipping out of the quarter at the end of June, coupled with purchasing delays by our customers as a result of the CyberGuard acquisition."

SCUR purchased CyberGuard for $295M last year, and the discrepancy in the company's Q2 earnings figures (higher net income, but lower EPS) was the result of dilution from the acquisition.

Following SCUR's earnings warning and CiperTrust acquisition announcement, analysts turned bearish on the name. For example, Raymond James' Jonathan Ruykhaver downgraded SCUR to "market perform" from "outperform," saying that SCUR is "still feeling after-effects of its CyberGuard merger," and that "it appears that the company's post-merger synergies have not been realized." He added that the CiperTrust deal "dramatically increases near-term uncertainty of SCUR's business and share price."

Other downgrades came from Soleil ("buy" to "hold"), Oppenheimer ("buy" to "neutral"), Jefferies & Co. ("hold" to "underperform"), and Janney Montgomery Scott ("buy" to "neutral"). Susquehanna, meanwhile, said that SCUR's valuation went from "quite cheap" to "highly depressed," but said that, "While this could create a very compelling investment opportunity going forward, they maintain their previously stated concerns that SCUR could find it more challenging to execute near term."

Not all analysts were bearish. Matrix upgraded the stock from "hold" to "buy," and both Dougherty & Company and RBC reiterated "buy" ratings on the stock. No analysts have changed their ratings or outlook since SCUR actually reported Q2 results, at which time the company forecasted Q3 EPS of 5 cents to 8 cents on revenue of $40M to $43M, compared to a consensus of 9 cents EPS on $43.3M in sales.