Zacks Analyst Interview Highlights: SAP, Fiserv, Intuit, Digital River and Verisign

CHICAGO--(BUSINESS WIRE)--Zacks.com releases the latest Analyst Interview. Today’s interview is with senior analyst Abdul Saleh, who discusses SAP (NYSE: SAP), Fiserv (Nasdaq: FISV), Intuit (Nasdaq: INTU), Digital River (Nasdaq: DRIV) and Verisign (Nasdaq: VRSN).

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Which would be your top Buy recommendations?

While most software companies are implementing a series of internal cost-cutting measures, these are steps that companies typically take in an economic downturn -- a hiring freeze, no non-essential travel, and so on. Generally speaking, a downturn is when investment in IT is most critical because these investments can make operations more efficient. This idea is one reason why we think that the tech sector would weather a downturn better than other parts of the economy.

Software giant SAP (NYSE: SAP) is apparently not halting its own tech spending. Instead, the company continues to make strategic investments in IT projects that directly impact its ability to grow business globally. SAP expects its customers and prospects to continue strategic IT spending over the next months, while somewhat narrowing their focus more to IT projects that deliver quick returns.

More importantly, what would help many of these companies to withstand economic headwinds are category leadership, performance based marketing offerings, higher international exposure, strong & seasoned management team, product innovations, and a strong balance sheet. Companies that may fit the bill are Fiserv (Nasdaq: FISV) and Intuit (Nasdaq: INTU).

Where would you advise investors to be wary in this space?

The biggest risk to the tech market comes not from the Wall Street collapse, but from a collateral U.S. recession. According to Forrester Research, it expects a mild recession in the U.S. and Europe lasting through Q3 and Q4 of 2008, and Q1 of 2009. While tech spending grew 8% in the U.S. in 2007, Forrester is forecasting tech purchases to be up 5% in 2008, and up 6% in 2009.

Should the economy run into a recession (if we are not already in one), this would be only the second downward economic cycle for the IT sector. Each Internet and Application Software company is at a different phase of its evolution in terms of scale, market share, investment in IT infrastructure, geographical expansion, operating leverage, new product release, pricing model, and strength of balance sheet. A recession will be felt harder by those companies that have been delivering extremely high organic growth rates, have high operating leverage, or are approaching minimum operating scale levels in 2008/2009.

Also, due to the U.S. dollar appreciation, Internet Software companies with significant non-U.S. revenues such as Digital River (Nasdaq: DRIV) and Verisign (Nasdaq: VRSN) will experience FX [foreign exchange] headwinds in addition to a slowing international economy.

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