Brean's Take On The Software Sector

• Shares of Software companies have been under significant pressure over the past 5 trading days.
• Brean Capital’s Yun Kim initiated coverage of several companies in the Software sector.
• While mentioning that enterprise IT spending trends could remain the same in the near term, Kim cited some companies that are better positioned to benefit.

Industry-wide checks suggest a steady enterprise IT spending environment, with the positive and negative spending trends remaining the same and expected to continue in the near term, analyst Yun Kim said.

He expects the sales environment for new large IT initiatives to continue to be challenging, with most of the large companies remaining risk-averse and favoring “smaller, lower cost deployments such as software-as-a-service (SaaS).”

Initiating Coverage

Manhattan Associates, Inc. MANH with a Buy rating and a price target of $74.
MicroStrategy Incorporated MSTR with a Hold rating.
Qlik Technologies Inc QLIK with a Buy rating and a price target of $40.
salesforce.com, inc. CRM with a Buy rating and a price target of $100.
Tableau Software Inc DATA with a Hold rating.
Varonis Systems Inc VRNS with a Buy rating and a price target of $25.
Workday Inc WDAY with a Hold rating.

Specific Trends

Kim added that some of the favorable spending trends could remain strong over the next several years, “especially highly strategic initiatives that provide a competitive advantage in the marketplace.” An example is the omni-channel initiative, “which is currently revolutionizing the way all retailers are interacting with their customers.”

Manhattan Associates appears well positioned to benefit from the omni-channel trend because of its core strength in supply-chain software, which is a key component of any Omni-channel initiative.

In the report Brean Capital noted, “We also believe that self-service business intelligence (BI) trend is entering a mass market adoption stage as companies enable all business users to make more informed decisions.”

Qlik Technologies is well positioned for this, since it has already invested in upgrading its sales infrastructure and has been developing products and technology for enterprise-wide deployment.

“While spending on security initiatives is likely to remain strong, we are beginning to see the emergence of market demand for insider threat prevention solution that is quickly becoming a top security spending priority for many large organizations,” Kim stated.

Varonis Systems would benefit from this, given its highly proprietary technology that is ideally suited for this concern.

Checks indicate that the dominance of SAP and ORCL for enterprise business applications is nearing its end. salesforce.com could take over “the de facto standard status,” the analyst wrote.