Security Software: Spending Continues for Protecting Stuff

by: Eric Savitz

While IT budgets are being squeezed, spending on security software and hardware remains strong, Pacific Crest’s Rob Owens asserted in a research note today. He notes that “the vast majority” of companies in the sector met or beat Q1 expectations. And he says checks on the quarter to date finds “continued demand for security solutions,” though he warns of some “air pockets,” in particular for the small-and medium-sized business segment and in the U.S. government sector.

In connection with his larger take on the sector, Owens raised his ratings on both Check Point (NASDAQ:CHKP) and Websense (NASDAQ:WBSN) to Outperform from Sector Perform.

Check Point, he writes “is benefiting from the transition to an appliance model, which now accounts for 30% of sales, which drives a higher average deal size and adds to growth.” He also says there are signs that some customers are looking to Check Point as an alternative to a firewall product from Cisco (NASDAQ:CSCO). His price target for Check Point is $30.

WebSense, he says, is benefiting from both new products and the successful integration of its acquisition of SurfControl. “WebSense has been able to avoid many of the common pitfalls on the revenue side, while driving a considerably better margin profile,” he writes. Owens also contends that “key competitors in the filtering space appear distracted,” with Blue Coat (NASDAQ:BCSI) busy with its pending acquisition of Packeteer (PKTR) and Secure Computing (SCUR) going through layoffs and a restructuring. His price target for Websense is $26.

Check Point today is up 62 cents, or 2.6%, to $24.83. WebSense is up 48 cents, or 2.6%, to $18.93.

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