Are Analysts Too Optimistic on Salesforce After Earnings?

Technology

Published: February 26, 2020 11:35 am

Last Updated: March 13, 2020 4:33 pm

Salesforce.com Inc. (NYSE: CRM) reported its most recent quarterly results after the markets closed on Tuesday. Although results were fairly positive, the investor response was muted. There may be a number of reasons for this, including the overall market sentiment on Monday and Tuesday. However, analysts took a longer-term approach on Salesforce stock, and most were very positive on where it can run from here.

24/7 Wall St. has included some brief highlights from the earnings report, as well as what analysts are saying after the fact.

Salesforce posted $0.66 in earnings per share (EPS) and $4.85 billion in revenue, which compared with consensus estimates of $0.55 in EPS and $4.75 billion in revenue. The same period of the previous year had $0.70 in EPS and $3.6 billion in revenue.

During the most recent quarter, revenues grew 35% year over year, and 34% in constant currency.

Subscription and support revenues were $4.56 billion, an increase of 35%. Professional services and other revenues increased by 26% to $288 million.

Looking ahead to the fiscal first quarter, the company expects to see EPS in the range of $0.70 to $0.71 and revenue between $4.875 billion and $4.885 billion. Consensus estimates call for $0.70 in EPS and $4.84 billion in revenue for the quarter.

Separately, the company announced that Keith Block will step down as Salesforce co-CEO. Marc Benioff will now be the board chair and sole CEO, with Block becoming advisor to the CEO. Salesforce also announced that it has named Gavin Peterson, former BT Group CEO, as president and CEO of Salesforce International.

Merrill Lynch reiterated an Outperform rating and raised its price objective to $250 from $215. The brokerage firm gave its investment rationale as follows:

Our thesis is that CRM is a long-term market share winner, with inflecting margins, benefiting from the structural shift to Cloud. We see multiple positive levers: 1) broader distribution. 2) lower attrition as enterprise ramps. 3) add-on/upgrade sales. 4) broadening addressable market into analytics/AI, verticals, IoT, commerce.

Here’s what a few other analysts had to say:

Raymond James reiterated it as a Strong Buy and raised its price target to $230 from $200.
Deutsche Bank reiterated its Buy rating and raised its price target from $185 to $195.
Canaccord Genuity reiterated a Buy rating and raised its target price to $200 from $185.
Stifel reiterated a Buy rating and raised the price target from $210 to $220.
Robert Baird reiterated an Outperform rating and raised its target to $210 from $200.
BMO reiterated it as Outperform and raised its price target to $224 from $220.

Salesforce stock traded at $181.46 on Wednesday, in a 52-week range of $137.87 to $195.72. The consensus price target is $203.08.