RBC: Mercury snatching market share from smaller rivals, such as Israel's RadView

RBC affirms Buy rating for Mercury despite 48% climb since September 11
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The slowdown is playing into the hands of Mercury Interactive (Nasdaq:MERQ), which is increasing its market share at the expense of smaller companies such as Israel's RadView Software (Nasdaq:RDVW).

So says RBC Capital Markets, which affirmed Mercury's aggressive Buy rating despite the 48% surge in its share price since the September 11 attacks on the U.S.

In a research note the investment bank set Mercury's 12-month target at $35, 17% above its current valuation.

While Mercury continues strong, the ones hit the hardest by the IT spending slide are smaller companies such as Keynote Systems, in the enterprise testing niche, Segue Software (Nasdaq:SEGU) and the Israeli RadView Software (Nasdaq:RDVW) in application performance testing software.

RBC estimates that Mercury's core business of enterprise testing systems will generate 65% of its revenues in Q4, the same as in Q3, despite the sector-wide decrease in IT spending.

Companies tend more to upgrade existing systems rather than purchase new applications these days, RBC notes.

Many companies want to open their legacy enterprise software to Internet. Hence there is a market for testing products, at the stage of adaptation, and performance control products after installation.