Information-technology security spending will increase as the economy perks up, a J.P. Morgan analyst said Wednesday, but the main beneficiaries will be authentication and authorization, not antivirus and firewall services.
While defensive-security stocks outperformed access-control companies by 35% over the last two years, no longer will companies be strictly interested in firewall and antivirus products in the coming months.
Based on this premise, analyst Sterling Auty upgraded access-control software companies, Netegrity (NETE - Get Report) and SonicWall (SNWL) but downgraded defensive-based companies, Check Point (CHKP - Get Report) and Symantec (SYMC - Get Report).
The analyst expects an increase in new customer activity at Netegrity's partners and in its sales, and he believes this will be "a precursor to bigger things." As such, Auty upped the company to overweight from underweight and raised his 2004 estimates to 6 cents a share from a loss of 6 cents a share. Shares of Netegrity jumped about 13% in morning trading to $6.88.Additionally, Web services, programs that automate data delivery between applications or companies, need to be secured via authorization. And the analyst sees enterprises focusing heavily on Web services spending in the coming year. Netegrity is a forerunner in Web services, Auty said, and he thinks the company will receive the most spending for authorization products. Meanwhile, SonicWall has seen strong sales of its combined 802.11 access-point firewall in the U.S. Auty also believes the company is doing well with its new focus on the low-end market with new products expected in the fall. SonicWall is in the middle of a turnaround, including a recent 15% workforce reduction, and the company's earnings guidance is conservative, with profitability expected in September, Auty said. He upgraded the stock to neutral from underweight, saying SonicWall's "$3.48 cash per share puts a floor under the stock." Recently, shares of SonicWall were up 4.4% at $5.17.