One theme that seems to be threading through a lot of the Street’s tech research Wednesday morning is fear of recession. You get the sense that a lot of people are sifting their coverage lists looking for stocks that have vulnerability to an economic downturn - or alternatively, the ability to maintain growth even in the face of a weakening business environment.
Pacific Crest’s Brendan Barnicle Wednesday morning offered a mixed outlook for the software business for 2008. On the one hand, he notes that overall software revenue growth should be up 14% this year. But on the other hand, he says the total has been “unduly affected” by Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL), which he sees growing 11% and 13%, respectively. Barnicle notes that in past recessions, spending on infrastructure software has outpaced that on applications.
Ergo, Barnicle Wednesday cut his earnings estimates today on SAP (NYSE:SAP), BEA Systems (BEAS) and RightNow (NASDAQ:RNOW) “to reflect our concerns about demand for applications if the economy weakens.” He advises avoiding all three of those stocks, and sticking instead to MSFT and ORCL. He also likes the on-demand software sector, and suggests owning a basket of stocks that includes Vocus (NASDAQ:VOCS), Taleo (NASDAQ:TLEO), Kenexa (KNXA), Salary.com (SLRY) and DemandTec (NASDAQ:DMAN).
As for those estimate cuts: For BEA, his EPS estimate for the January 20008 fiscal year remains 70 cents. But for FY ‘09, he goes to 79 cents, from 81 cents. For RightNow, his 2008 EPS estimate drops to a penny a share, from 4 cents.
For SAP, he now sees 2008 revenue of 11.52 billion Euros, down from 11.92 billion, although his EPS estimate ticks up to 1.86 Euros a share, from 1.79. That is still below the Street consensus of 1.89. “EPS estimates still seem too high for next year, and assume too much margin improvement,” he contends.
Wednesday morning, BEA is down 26 cents, or 1.7%, to $15.52; RightNow is down 52 cents, or 3.3%, at $15.33; but SAP is up 30 cents at $51.35.