Barclays on U.S. Software: Initiating Coverage: Growth in Uncertain Times

December 6, 2011 1:05 PM EST
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Barclays on U.S. Software: Initiating Coverage: Growth in Uncertain Times

Barclays analyst, Raimo Lenschow, said, "We initiate coverage of the US Software sector with a Positive view. Amid uncertainty about the economic outlook and concerns about growth, particularly in Europe, we believe the structural growth stories of many of the 20 software companies in our coverage universe present investment opportunities that could outperform the overall market. We note that vendors with meaningful exposure to emerging trends such as cloud computing, Software as a Service (SaaS) or big data should thrive as they offer customer solutions that are self-funding. Our top picks are Citrix (Nasdaq: CTXS), VMWare (NYSE: VMW), Salesforce (NYSE: CRM) and Parametrics (Nasdaq: PMTC). In the large-cap space, we believe both Oracle (Nasdaq: ORCL) and SAP (NYSE: SAP) can perform well as both are driven by different product cycles."

"Growth opportunities in the Software as a Service (SaaS) market. The SaaS market is well positioned to take advantage of the growth in cloud computing and offers customers the opportunity to consume a service without any capex investment - an advantage in the current environment. We favor the relevant market leaders in their sub-segments - those with scale as that represents a strong competitive advantage. We initiate coverage on Salesforce (CRM segment), Cornerstone (Nasdaq: CSOD) (HR segment), NetSuite (NYSE: N) (ERP segment), LogMeIn (Nasdaq: LOGM) (SaaS based connectivity) with a Overweight rating. We also like the transformation stories of Ariba (Nasdaq; ARBA) and Intuit (Nasdaq: INTU) and initiate both with a Overweight rating. We rate Taleo (Nasdaq: TLEO) and DealerTrack (Nasdaq: TRAK) Equal Weight."

"A dramatic proliferation of data volume and data formats. The big data theme is a new trend that is expected to impact the industry in the coming years. We like QlikTech (Nasda: QLIK) (Overweight) as an early leader in the data discovery segment, but also see interesting growth opportunities for Informatica (Nasdaq: INFA) (Overweight), SAP (Overweight) and Oracle (Overweight). We rate Teradata (NYSE: TDC) and Tibco (Nasdaq: TIBX) Equal
Weight - both have been very strong performers this year, and we prefer to wait for more favorable entry points."

"Established vendors lack significant catalyst. Microsoft (Nasdaq: MSFT) (Equal Weight) and Symantec (Nasdaq: SYMC) (Equal Weight) look cheap but given the long-term strategic overhang at Microsoft and the lack of organic growth at Symantec, we are not yet tempted to recommend them. We see an opportunity with Microsoft in the coming months as the market does not appear to have priced in the potential launch of Windows 8, but we
remain cautious given the early stage of Microsoft's mobile offering. In the CAD/CAM space, we like the self-help story of Parametric (Overweight) while we are concerned over the high license revenue exposure to Europe for Autodesk (Nasdaq: ADSK) (Equal Weight)."

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