The software analysts at Goldman Sachs today downgraded their view of the software sector to Neutral from Attractive, asserting in a research note that “macro indicators suggest a softening in capital spending in 2008, particularly in the U.S.” The firm asserts that “with software a typically back-end loaded sale, if there is any concern on budgets in the early part of 2008, we would expect CIOs to hold off their purchases until later in the year.”
In addition, Goldman says there are few near-term catalysts to drive the group higher, since “Q4 seasonal strength is already expected so investors are likely to exposure ahead of Q1 results in April.” Not least, the firm says that software could see “some mean revision” after lead all tech sub-sectors in 2007 year to date, “while software has tended to a laggard among tech sub-sectors in the calendar Q1.” Since July 20, the Goldman Sachs Software Index is up 2%, versus declines of 8% by the S&P 500 and 5% on the Nasdaq Composite.
Goldman cut 2008 estimates on many software stocks, “focusing on enterprise exposure, pure-plays that could be harmed as customers seeks to purchase good enough substitutes from larger vendors, and vendors who sell big ticket items that could be delayed in a slower spending environment. The firm cut estimates by 1% on average on the following companies:
- Check Point
- Quest Software
- Red Hat
- Secure Computing
Goldman’s report says the firms favorite software stocks are Microsoft (NASDAQ:MSFT) and Oracle (NYSE:ORCL) for vendors consolidation; Autodesk (NASDAQ:ADSK), Citrix (NASDAQ:CTXS) and CommVault (NASDAQ:CVLT) for ongoing product cycles; and Symantec (NASDAQ:SYMC) and BMC (NASDAQ:BMC) as “value-oriented turnarounds.”