> IT Services – positioning for 2010 (GOLDMAN SACHS)

Focused on enterprise IT spending and payments
■ We remain positioned around tech enterprise exposure into 2010
• Into 2010 we positioned our top picks around earlier-cycle stocks in our Consulting and Outsourcing group that should directly benefit from improvements in enterprise IT demand.

• Incremental spending associated with various technological changes taking hold at the infrastructure and application level provides an additional driver.

■ Focused on payments in Transaction Processing
• Although Neutral on the Transaction Processing coverage group, we see selective opportunities in this coverage area with Buy ratings on MasterCard (MA), Visa (V), and Alliance Data Processing (ADS).

■ In February we initiated coverage of three new specialized payment names, broadening our Transaction Processing coverage group
• Alliance Data Systems (ADS) – Exposure to the loyalty and private label card segments.
• CyberSource (CYBS) – Exposure to the fast-growing online payments universe.
• Wright Express (WXS) – Exposure to the fleet card processing industry.

■ Remain underweight on SMB, lagging HR/payroll names, and secularly challenged models
• Weak SMB conditions, a sluggish labor market, and lagged revenue models keeps us underweight on payroll names and selected stocks with secularly challenged end-market exposure.

Cycle rebound and secular shifts provide strong tech spending tailwinds
■ Improvement in key macro indicators leads to upward bias in our IT spending forecasts
• Given sustained traction in key indicators such as GDP, corporate profits, and emerging markets fixed investment in the past couple of months, our tech forecast bias positive.
• Our worldwide tech spending forecast remains set at 5% growth for 2010; this follows an 8% decline in 2009.

■ Our IT spending indices continue to point to growth expectations
• Our total IT spending index in February (which includes salaries, services, depreciation, and occupancy) came in at 57.0, up from 56.0 in our prior survey in December, implying modest growth.
• Our tech capital spending index (representing spending only on new equipment and software) also gained, rising to 58.5 from 57.5 previously, consistent with our view of pent-up demand

To read the full report: IT SERVICES