Jefferies Very Positive on Software Stocks Before Earnings

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The outlook for software stocks may be the brightest for investors in years. A strengthening European government spending outlook, combined with an increase in U.S. government spending, is providing some needed tailwinds for the top companies. Add in some flat to slightly higher spending from financial services companies, and this year could be outstanding.

A new report from Jefferies highlights stocks that may be poised to deliver good earnings this quarter. With government and financial services spending accounting for half of global IT spending, and pointing higher, some of the top stocks to buy could deliver earnings ahead of modest expectations.

We screened the Jefferies list for stocks rated Buy. Checkpoint Software Technologies Ltd. (NASDAQ: CHKP), Qlik Technologies Inc. (NASDAQ: QLIK), Varonis Systems Inc. (NASDAQ: VRNS) and VMware Inc. (NYSE: VMW) all could provide investors solid results when they report.

Checkpoint Software Technologies

Companies are looking to insulate themselves and the data they have from hackers seeking access, and that is good news for Checkpoint Software Technologies. The company recently acquired Israel-based mobile security provider Lacoon Mobile Security to increase offerings for clients. Lacoon offers enterprise-level security solutions for Apple’s iOS and Google’s Android-based mobile devices. The company also provides real-time mobile security and intelligence to any organization’s existing security and mobility infrastructures.

The Jefferies team views Checkpoint as benefiting from the increases in European government spending for information technology (IT). Many on Wall Street see Checkpoint’s ongoing focus on expanding its product portfolio through acquisitions and offering industry-leading solutions as a key for extending the current strong growth momentum.

The Jefferies price target for the stock is $91. The Thomson/First Call consensus price target is at $86.26. Shares closed Monday at $82.91.

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Qlik Technologies

This stock has generated a big buzz on Wall Street. The company’s QlikView Business Discovery platform lets people quickly bring data sources together to create dynamic visual applications that can be navigated and searched intuitively. QlikView uses natural analytics to reflect the way human curiosity searches and processes information, while delivering the enterprise manageability, governance and service offerings organizations require. The company’s products helped retailers during last year’s holiday season by providing them with timely and relevant information about inventory and stock, enabling purchasing managers to better anticipate demand and advise production teams.

Qlik Technologies was named the top “cross-industry” vendor in a recent KLAS Report, for having the best understanding of health care analytics and for being considered one of the most important vendors to a customer’s organization in terms of their future BI and analytics plans.

The Jefferies team feels the company could beat current earnings expectations and have a $40 price target for the stock. The consensus target is posted at $34.93. Shares ended the day Monday at $33.08.

Varonis Systems

This leading provider of software solutions for unstructured, human-generated enterprise data provides an innovative software platform that allows enterprises to map, analyze, manage and migrate their unstructured data. Varonis specializes in human-generated data, a type of unstructured data that includes an enterprise’s spreadsheets, word processing documents, presentations, audio files, video files, emails, text messages and any other data created by employees. This data often contains an enterprise’s financial information, product plans, strategic initiatives, intellectual property and numerous other forms of vital information.

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Varonis is a company the Jefferies analysts feel could benefit from the increase in European government spending. Jefferies has a $45 price target, and the consensus estimate is $40.33. The stock closed Monday at $27.23.

VMware

VMware is a top stock to buy on Wall Street and another company Jefferies feels can beat earnings estimates. Back-to-back mediocre earnings releases hit the stock earlier this year, despite the fact that the company is still a leader in cloud storage software and its cloud computing service is a new offering for its customers. The company recently announced lowered pricing for cloud computing and self-service, pay-as-you-go options for public cloud. The company touts that the vCloud Air product delivers two times the compute power of Microsoft Azure and three times the storage performance of Amazon AWS.

Many on Wall Street feel that VMware is well positioned to leverage what they term as the “strategic high ground” of the hypervisor to dominate the emerging markets for the software-defined networking and software-defined storage. They also expect new solutions to help drive earnings growth, especially in the second half of 2015.

The Jefferies price target is $104, but the consensus target is much lower at $95.75. The stock closed trading on Monday at $83.10 a share.

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With increased spending and the potential for companies to beat earnings estimates, these Jefferies stocks to buy make good sense for aggressive accounts looking to add positions in front of first-quarter earnings results.