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The Wall Street Reaction To Salesforce's Q4 Beat

The Wall Street Reaction To Salesforce's Q4 Beat
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Shares of, inc. (NYSE: CRM) hit a new all-time high of $122.47 Thursday after the company reported fourth-quarter earnings the night before. Now that the stock is up more than 40 percent over the past year, are Wall Street analysts encouraging investors to take profit off the table or to accumulate more shares?

Price Target, Rating Changes

  • Wedbush's Steve Koenig: maintains Outperform rating, price target boosted from $123 to $140.
  • Bank of America's Kash Rangan: maintains Buy rating, price target boosted from $125 to $147.
  • Canaccord Genuity's Richard Davis: maintains Buy rating, price target raised from $130 to $135.
  • Credit Suisse's Michael Nemeroff: maintains Outperform rating, price target raised from $130 to $135.

Wedbush: Surprisingly Large Beat

Salesforce reported a "surprisingly large" beat in Q4, with notable strength in unbilled deferred revenue, which grew 48 percent year-over-year, and billings, which grew 28 percent year-over-year, Koenig said in a Thursday note.

Perhaps more impressive, the company managed to expand its operating margin by 125 basis points for the full year despite large sales commissions in the quarter. Salesforce expects another 125-to-150-basis point expansion in fiscal 2019.

Salesforce continues to benefit from a strong demand environment, renewal expansion and the ability of the company's sales team to deliver large deals, the analyst said. "Impressive" guidance for fiscal 2019 may signal that Salesforce's 2022 target of $20 billion in revenue remains "in sight," he said. 

Bank Of America: 'Undervalued' Stock

Salesforce's status as a "long-term premium cloud story" remains unchanged, Rangan said in a research report. In fact, the stock remains undervalued, as the analyst's $147 price target is based on a 7.2x multiple on 2019E EV/revenue — a 10-percent discount to some of the company's peers, the analyst said. 

The stock's multiple today is trading at just 6.7x C18E revenue and 33x free cash flow, Rangan said. By comparison, Adobe Systems Incorporated (NASDAQ: ADBE)'s stock is trading at 10x revenue and has achieved a 40-percent operating margin — a rate Salesforce can achieve over the longer term, the analyst said. 

Related Link: Salesforce CEO Talks $20B Revenue Target After Record Year

Canaccord: 'Exemplary Print'

Heading into the print, Salesforce was expected to report a beat-and-raise quarter, and that's precisely what occurred, Davis said in a note. While there wasn't "much to dislike" in the quarter, there were some bearish items in the report for investors to be aware of, including expectations for "slightly higher" free cash flow guidance for the new fiscal year.

Salesforce's stock is trading at just 25x C2019E EV/FCF, which looks "quite compelling" for a company growing at a percentage point rate in the mid-20s, the analyst said. Salesforce trades at an EV/FCF ratio of around 1x, which makes buying the stock a "good bet," Davis said. 

Credit Suisse: 'Stellar Quarter'

Salesforce reported another "stellar" quarter to mark the end of a "strong" full fiscal year, Nemeroff said in a research report. The analyst named the following factors as highlights:

  • Ongoing momentum in the company's multicloud strategy, as Service and Platform Clouds recorded yet again acceleration in growth.
  • An increase in international business that resulted in the strongest backlog growth in more than four years.

Throughout the full fiscal year, the company's billings growth of 25 percent exceeded expectations of 20-percent growth, the analyst said. This "sets the stage" for further upside over the next few quarters and "demonstrates the inherent operating leverage in Salesforce's business model," he said.

Related Link:

Biggest Price Target Changes For Thursday

Photo courtesy of Salesforce.

Latest Ratings for CRM

Mar 2018BarclaysMaintainsOverweightOverweight
Mar 2018Morgan StanleyMaintainsOverweightOverweight
Mar 2018JMP SecuritiesMaintainsMarket OutperformMarket Outperform

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