MKM Counting On 'Solid' Q2 Billings From Salesforce; Sees 'Return Of M&A A Possibility'

Salesforce.com, inc. CRM will close its second quarter at the end of this week. In a report issued Tuesday, MKM’s Managing Director Kevin Buttigieg looked into the company ahead of the print and concluded that transactions data implies solid second quarter billings. He reiterated a Buy rating and $86.00 price target.

The Early Read

So far transactions are up 70 percent year-over-year. Taking into account the growth of this week, the year-over-year transactions growth rate could surpass 78 percent, the fastest growth in over three years. The analyst explained that, “With nearly an 80% correlation with billings, transactions data is seen as a proxy for billings growth.” The firm expects billings to surge about 75 percent year-over-year.

He noted that shares of salesforce have been essentially flat in the past few weeks as acquisition speculation disappears on the back of no headlines.

“Still, solid billings, combined with improving profitability - a new focus point for investors that CFO Mark Hawkins seems well attuned to - should help pace share gains in coming quarters with the return of M&A a possibility,” the firm said.

Moreover, the report continues, Support Cloud also seems to be having a strong quarter – the transactions data does not include the ExactTarget Marketing Cloud because of its design. MKM also anticipates progress in both GAAP EPS and non-GAAP operating margins.

The analysts conclude, “Valuation has been a bit elevated in part due to acquisition speculation, but we think it is apt to remain in the shares. With continuing 20%+ adjusted billings growth, improving business diversification and growing profitability, we believe CRM can sustain a higher enterprise value multiple.”

The firm is expecting earnings of $0.17 per share on revenue of $1.599 billion for the second quarter. The Street’s consensus stands at $0.18 per share and $1.599 billion, in line with guidance of $0.18 per share and $1.595 billion.