Goldman Sachs Upgrades NUAN, VMW to Buy; Downgrades ADSK, CVLT to Neutral; Lowers Price Targets in Software

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Goldman Sachs made a number of rating changes in the software sector today ahead of second quarter earnings season. The firm expects solid Q2 results, but just in-line with guidance. The firm lowered price targets across the board.

• Nuance Communications, Inc. (Nasdaq: NUAN) was upgraded from Neutral to Buy and the firm raised their FY10, FY11 and FY12 EPS estimates. The firm also raised their price target from $18 to $19.50. The firm notes the stock trades at 11x 2011, a discount to the software group median of 16X. They also see positive catalysts including acceleration of revenue recognition and the possible first-ever analyst day in Q4.
  
  
• VMware (NYSE: VMW) was upgraded form Neutral to Buy and FY10, FY11 and FY12 EPS (ex-ESO) estimates were raised to $1.42, $1.84 and $2.32 from $1.33, $1.63 and $1.92. The firm also raised their price target from $70 to $78. The firm said checks continue to underscore VMware's dominance in the enterprise as well as growing traction down market, with little inroads from competitive challengers to date. VMW is also beginning its first wave of enterprise license agreement renewals.
  
  
• Autodesk (Nasdaq: ADSK) was downgraded from Buy to Neutral and EPS estimates for FY11, FY12 and FY13 EPS were reduced. The price target was also cut from $35 to $27.50. The firm said while they retain conviction in Autodesk's dominant franchise, macro concerns continue to weigh on sentiment, and decelerating global growth and government austerity measures could dampen the top-line recovery that we expected earlier in the year.
  
  
• CommVault (Nasdaq: CVLT) was downgraded from Buy to Neutral, citing limited upside to their revised price target of $24 (down from $25.50).
  
  
• Adobe (Nasdaq: ADBE) was removed from Conviction Buy List, although a Buy rating is maintained. The firm cut their price target form $46 to $35, which still implies 31% upside.
  
  
• SolarWinds (NYSE: SWI) was removed from Conviction Buy List, although a Buy rating is maintained. The firm sees in-line results for 2Q, but see increased risk to 3Q and beyond given stronger signals last week that the US federal government is looking to tighten spending. The firm lowered FY10, FY11 and FY12 EPS (ex-ESO) estimates to $0.71, $0.89 and $1.06 from $0.73, $0.97 and $1.22. The price target was lowered to $21.50.

The firm also lowered their price target on

• Oracle (Nasdaq: ORCL) (Buy) from $32 to $27
  
• BMC Software Inc. (NYSE: BMC) (Neutral) from $43 to $42.50
  
• CA Technologies (NYSE: CA) (Sell) from $20 to $19
  
• Check Point Software Technologies Ltd. (Nasdaq: CHKP) (Neutral) from $36 to $33.50
  
• Citrix Systems, Inc. (Nasdaq: CTXS) (Neutral) from $52 to $47
  
• Concur Technologies, Inc. (Nasdaq: CNQR) (Neutral) from $46 to $42.50
  
• Intuit Inc. (Nasdaq: INTU) (Neutral) from $38 to $37
  
• McAfee, Inc. (NYSE: MFE) (Neutral) from $40 to $36
  
• Microsoft Corporation (Nasdaq: MSFT) (Buy) from $38 to $31
  
• NetSuite Inc. (NYSE: N) (Neutral) from $16 to $12.50
  
• Red Hat, Inc. (NYSE: RHT) (Neutral) from $30 to $27.50
  
• Salesforce.com (NYSE: CRM) (Buy) from $102 to $100
  
• SuccessFactors, Inc. (Nasdaq: SFSF) (Buy) from $25 to $24
  
• Symantec Corporation (Nasdaq: SYMC) (Neutral) from $18 to $17
  
• Taleo Corp. (Nasdaq: TLEO) (Buy) from $34 to $30

The price target on Akamai Technologies Inc. (Nasdaq: AKAM) was raised from $40 to $47, although a Neutral rating was maintained.

The firm said expectations of slowing economic growth, versus a "double-dip: recession – "drives our current preference for Secular growth (Buy CRM, SFSF, SWI, TLEO, VMW); (2) Low-multiple names with 2H positive catalysts (Buy ADBE, MSFT, NUAN); and (3) Names with dominant market position and strong EPS protection (Buy ORCL)."

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