Salesforce Bull Case Into Earnings

Brean Capital expects an at least in-line result from salesforce.com, inc. CRM when it reports its third-quarter numbers on November 17, driven by strong enterprise demand and increasing traction with large global system integrators.

Quarter Expectations

The Street expects EPS of $0.21 on revenue of $2.12 billion for the third quarter. Brean sees EPS of $0.20 on revenue of $2.118 billion.

Buoyed by large deals, the brokerage expects 24 percent revenue growth and 12 percent billings growth. Further, Brean projects acquisitions to represent about 4 percent of revenue growth for the quarter.

“Our checks indicate that SFDC (salesforce) is beginning to replace SAP SE (ADR) SAP and Oracle Corporation ORCL as the de facto standard status in enterprise business applications, which is reflected in large global system integrators aggressively building out their SFDC practices,” analyst Yun Kim wrote in a note.

Kim’s checks also found higher spending toward salesforce’s core businesses including front-office and customer-facing verticals.

Forward Focus

Looking ahead, Kim expects at least in-line fourth-quarter guidance and at least in-line FY 2018 revenue forecast from the company. Street estimate calls for EPS of $0.25, 24 percent revenue growth at $2.24 billion, 21 percent billings growth for the fourth quarter. Wall Street anticipates 21 percent revenue growth for FY 2018.

While being positive on the company’s M&A strategy, the analyst acknowledged cautious investor sentiment could limit valuation multiples to expand in the near term.

“In our view, acquisitions serve as a key strategic growth driver for the company as it begins to benefit from its emerging status as the de facto enterprise standard,” Kim added.

Kim has a Buy rating and $110 price target on the stock, which closed Monday’s trading at $72.76.