Is Salesforce.com Ready To Breakout?
Salesforce.com (NASDAQ: CRM) released its fourth quarter earnings results after the closing bell on Thursday, exceeding Wall Street estimates. Salesforce.com is one of the most richly valued companies in the world as a result of its hyper growth position within the enterprise cloud-computing segment.
The stock has been a big winner coming out of the financial crisis when CRM shares traded as low as $27.00. Currently, the stock is trading above $143.00. Since the end of 2010, however, CRM has stagnated and hit a 2011 low of $98.00 as recently as December.
Yesterday's earnings report, however, along with the recent market rally is breathing new life into the stock which could be ready to break out of a consolidation period and run towards $200 in 2012.
In the fourth quarter, the company posted a net loss of $4.08 million or $0.03 per share, compared to net income of $10.91 million or $0.08 per share, in last year's corresponding period. On a non-GAAP basis, which is comparable to analysts estimates, CRM reported earnings per share of $0.43 versus $0.31 in last year's fourth quarter. This compared to Wall Street analysts' consensus EPS estimates of $0.40.
Quarterly revenues at the San Francisco based company rose to $631.91 million from $456.87 million last year. This also beat analysts' consensus of $624.03 million. All around, it was another solid quarter for Salesforce. Looking ahead, the company also provided upbeat forward looking guidance, particularly on the revenue front.
CRM sees first quarter non-GAAP EPS in a range of $0.33 to $0.34 on revenue of $673-678 million. This compares to current Street consensus estimates of $0.36 on revenue of $663.14 million.
For fiscal 2013, CRM expects to report non-GAAP EPS between $1.58 and $1.62. Revenues are now expected to be between $2.92 billion and $2.95 billion versus previous guidance of $2.880 billion to $2.920 billion. Currently, Wall Street analysts are projecting that CRM will earn $1.62 per share on revenue of $2.91 billion for fiscal 2013.
While the company's earnings guidance is a little light, its Q1 and full-year fiscal 2013 revenue guidance is ahead of the Street - exactly what investors want to see to confirm that CRM's growth trajectory is on schedule. During Friday's trading session, CRM shares have surged 9.52% to $144.29. Volume has been very heavy.
The company's Q1 results, and the Street's reaction, is a very good sign for shareholders. Since bottoming out at the beginning of January, CRM has been seeing big inflows and is benefitting from considerable momentum. Over the last 3 months, the stock has added more than 35%, including 22% over the last month.
The takeaway for investors and traders is that this "momo" standout is starting to show real signs of life again. Just ask anyone who rode CRM in 2009 and 2010 - when this stock gets going, it really moves. In the wake of Thursday's strong Q1 report, CRM may once again become a favored beta play of risk-loving hedge funds and other momentum investors. If the big boys start building positions in this name, their footprints should be fairly easy to spot.
If Salesforce is about to move back to the front of the momentum pack, it should be able to breakout above the $150.00 level on unusually strong volume in short order. If this occurs, the next level that CRM will have to punch through is its all-time high at $160.12. This all-time high is less than 11% above current levels and could be challenged in coming weeks. If CRM moves to new all-time highs in convincing fashion, the $200.00 level would appear to be a natural price target.
This is also the level that BofA Merrill Lynch analysts are targeting in the wake of the company's earnings report. They wrote on Friday morning that the quarter was a "huge beat on all fronts" and "marks an inflection point." The firm raised their price target from $160.00 to $200.00 and is advising clients that Salesforce is a clear long-term winner in the Cloud. Investors across Wall Street will be watching in the coming weeks to see if CRM can start another huge run.
The knock against Salesforce has always been valuation. The stock trades at a Price/Sales ratio of 8.57, a forward P/E multiple of 66.32, and a PEG ratio of 3.11. In order to justify these metrics, CRM has to continue to grow at a torrid pace and exceed the very high bar that Wall Street has set. The Street projects that the company will post annual EPS growth of 26.14% over the next five years which compares to annual growth estimates of 10.49% for the S&P 500 during the same time period.
While valuation could be a long-term concern, the technical setup in CRM should be the focus right now. Momentum stocks like Salesforce can make massive runs before the market comes to its senses and collectively takes another hard look at valuation. In particular, if risk appetite continues to ramp up in the broader market, it is likely that CRM could be trading $40 or $50 higher in short order. Near-term catalysts for a breakout to new highs in the stock include analyst upgrades, upward estimate revisions, and continued bullishness over Q4 earnings results and CRM's forward looking guidance.
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