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At A New All-Time High, Salesforce's Outlook Is Exciting Wall Street Analysts

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At A New All-Time High, Salesforce's Outlook Is Exciting Wall Street Analysts
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  • Shares of salesforce.com, inc. (NYSE: CRM) spiked higher by more than 6 percent on Thursday.
  • Salesforce's stock hit a new all-time high of $82.90 on Thursday.
  • Investors and traders bought the stock following a better-than-expected Q3 and encouraging outlook, but are Wall Street analysts equally bullish?

Shares of Salesforce hit new all-time highs of $82.90 on Thursday after the company reported its third-quarter earnings and encouraging guidance on Wednesday.

Here is a roundup of what Wall Street's top analysts were saying following the earnings report.

Bernstein: Expectations' Too Optimistic'

Mark Moerdler of Bernstein commented in a note that Salesforce's stock already prices in a "sustained strong growth" profile along with "significant" margin expansion. However, the analyst noted these expectations are "too optimistic" given the company's historical trend of overspending to generate growth.

Moerdler expects Salesforce's subscription growth to decelerate across all four major clouds. In addition, the Analytics Cloud will "not be a large enough" portion of total revenue to drive overall growth. The analyst also noted that the company's hosting costs (along with R&D costs) have increased and are "likely to remain high" as the company must invest "heavily" to integrate acquisitions (that offer a lower gross margin profile) that are built on different technologies.

Shares remain Underperform rated with a price target raised to $66 from a previous $60.

Deutsche Bank: ‘Solid' Q3, Guidance ‘Looks Conservative'

Karl Keirstead of Deutsche Bank commented in a note that Salesforce's third-quarter beat should be considered "solid" and "good enough" for the stock.

Keirstead stated that Salesforce's fourth-quarter DR growth guidance of 23 percent to 24 percent was "a bit light" and implies fourth quarter DR revenue of $4.12 billion – short of the analyst's $4.22 billion estimates. In addition, the high end of its total revenue and DR guidance implies a billings growth of around 21 percent, in-line with the past few quarters but a lower sequential DR growth rate versus the fourth quarter of last year.

Related Link: Amazon Web Services: Best Growth Story Of The Decade?

Keirstead also noted that Google's Cloud Platform chief was speaking at an industry event and said that Google's cloud revenues would "ramp materially" and one day even surpass its advertising revenue. The analyst noted this is "hard to imagine" but demonstrates that cloud adoptions "hit the mainstream adoption level."

Keirstead said Salesforce "seems to be waving the cloud flag less vigorously and is instead focusing more on being a customer company." He added that the cloud space will get more crowded, but he still likes the set-up heading into Salesforce's "big" fourth-quarter print.

Bottom line, Salesforce's stock is trading at 6.3x FY17E and at 37x FCF for a 20 percent-plus growth company. Coupled with the company's rising margins and "leading" cloud technology play, the stock is still "attractive."

Share remain Buy rated with an unchanged $90 price target.

Jefferies: ‘The Math Of Growth'

John DiFucci of Jefferies commented in a note that there are several metrics to consider when evaluating the growth prospects for any SaaS company, particularly Salesforce. The analyst suggested the "most important" factor to consider is new annualized subscription revenue, also known as new subscription ACV (annual contract value.)

According to DiFucci's calculations, Salesforce's new subscription ACV grew 22 percent year-over-year on an organic and constant currency basis in the quarter, versus 12 percent growth last quarter, and flat year-over-year in the first quarter. The analyst added that there are many factors that could "pollute" his calculated metric, such as early renewals, but the company doesn't disclose the data. As such, the potential "polluting" factors "would likely eventually unwind" and have "the opposite effect" on future results, so they eventually will be accounted for.

The analyst explained: "Early renewals might "boost the calculation of new subscription ACV in the quarter they happen, but would have a negative effect on the future quarter they were due for renewal."

Bottom line, DiFucci stated it is "difficult to determine the impact of certain items that could skew our calculation of new business, but 22 percent growth in new subscription ACV was the best year-to-date."

Shares remain Underperform rated with a price target raised to $54 from a previous $51.

Wedbush: Valuation Concerns

Steve Koenig of Wedbush commented in a note that Salesforce posted another "typically strong" beat and raise quarter with notable strength in billings that grew 24 percent year-over-year in constant currency. In addition, the company's guidance "hit the right buttons" with initial fiscal 2017 revenue expectations exceeded consensus estimates, even at the low end of the guidance range.

However, Koenig noted that Salesforce's valuation ($51 billion) looks "fairly full." In addition, while the analyst is bullish on the company's ability to grow the PaaS market as a leading vendor, it will "take time for this market to develop" and the recent run-up in the stock "may have absorbed some of the near-term upside potential."

Shares remain Neutral rated with a price target raised to $79 from a previous $73.

Elsewhere On The Street

Analysts at Barclays maintained an Overweight rating with a price target raised to $90 from a previous $87.

Analysts at Oppenheimer maintained an Outperform rating with a price target raised to $88 from a previous $80.

Analysts at Pacific Crest maintained an Overweight rating with a price target raised to $95 from a previous $80.

Analysts at Northland Capital Markets maintained an Outperform rating with a price target raised to $95 from a previous $85.

Latest Ratings for CRM

DateFirmActionFromTo
Jan 2017Pivotal ResearchDowngradesBuyHold
Dec 2016Drexel HamiltonInitiates Coverage OnBuy
Nov 2016OTR GlobalUpgradesMixedPositive

View More Analyst Ratings for CRM
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