Citigroup's Possible Pair Trade For Software Stocks

In a report published Monday, Citigroup’s Walter H. Pritchard proposed a possible pair trade including VMware, Inc. (NYSE: VMW) and Citrix Systems, Inc. (NASDAQ: CTXS). Based on upcoming catalysts, the analyst named VMware among his most preferred stocks and Citrix Systems among his least favorites in the software sector.

The Sector

Citigroup specialists looking into the systems software and application software industries said they “believe sector set-up favors growth (vs. hyper-growth) and applications software (vs. infrastructure).” They also see “subscription transitioning remaining theme, although with more differentiation in stock performance across the various names here.”

According to the report, Citigroup expects “more of a return of product cycle investing after a dearth in 2014 although industry conditions of less cash-rich acquirors and higher valuations keeping a lid on consolidation.”

Related Link: Citi Initiates Coverage On VMWare

The Pick

On top of Citigroup, which recommended VMware, several other major Wall Street research firms endorsed the stock. On January 6, Barclays reiterated an Overweight, accompanied by a $100 price target; in late December, Jefferies issued a Buy and a $128 price target.

The stock closed Monday at $80.74, up 2.3 percent.

On the opposite sidewalk, Piper Jaffray assumed coverage on the stock on December 12 with an Underweight rating and a $69 price target.

The Pan

Similar to Citigroup, other research firms do not like Citrix Systems. Piper Jaffray was amongst the bears and assumed coverage with at Underweight and a $63 price target on December 11.

In late November, Jefferies initiated coverage with a Hold rating and a $64 price target.