Market Overview

The Street's Reaction To Salesforce's Big Q3 Beat

Share:
The Street's Reaction To Salesforce's Big Q3 Beat

Salesforce.com, inc. (NYSE: CRM) reported Tuesday a top-and-bottom-line beat in its third quarter. Earnings came in at 61 cents per share, beat estimates by 11 cents while sales of $3.392 billion beat $3.37 billion estimates.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Wells Fargo's Philip Winslow maintains an Outperform rating on salesforce with an unchanged $175 price target.
  • Barclays' Raimo Lenschow maintains at Overweight, unchanged $172 price target.
  • Jefferies' John DiFucci maintains at Buy, unchanged $189 price target.
  • Canaccord Genuity's Richard Davis maintains at Buy, unchanged $165 price target.
  • Tigress Financial Partners' Ivan Feinseth.
  • KeyBanc Capital Markets' Brent Bracelin maintains at Overweight, unchanged $180 price target.
  • BMO Capital Markets' Keith Bachman maintains at Outperform, price target lifted from $174 to $175
  • Raymond James' Brian Peterson maintains at Strong Buy, price target lowered from $185 to $165.
  • Wedbush's Steve Koenig maintains at Outperform, price target lifted from $160 to $166.
  • Credit Suisse's Brad Zelnick maintains at Outperform, unchanged $175 price target.
  • Morgan Stanley's Keith Weiss maintains at Overweight, unchanged $178 price target.
  • Oppenheimer's Brian Schwartz maintains at Outperform, unchanged $180 price target.

Shares of salesforce were trading higher by 4 percent to $132.60 Wednesday morning.

Wells Fargo: Strong Focus

Salesforce's strong performance in the third quarter can be attributed to its continued focus on the CRM market and its ability to offer a complete solution package to clients, Winslow said in a research note. Salesforce's suite of products also allows it continue gaining market share in the CRM market, which happens to be the fastest growing segment in the entire enterprise software market.

Credit Suisse: 'Partner Of Choice'

Salesforce's status as being a "partner of choice" for the digital transformation was reaffirmed in the third quarter, Zelnick said. In fact, the "deeper penetration and integration" within the enterprise market represents a big opportunity for salesforce moving forward.

Morgan Stanley: Growth Isn't Priced In

Exiting salesforce's print, there's reason to believe the company can sustain a 30 percent free cash flow compounded annual growth rate through fiscal 2022, Weiss said. Moreover, the stock is trading now at just 0.9 times calendar year 2020 PEG, which is a discount to the large cap software group of 1.5 times. This makes salesforce an ideal earnings and free cash flow play in today's volatile environment.

Barclays: 4 Positives, 2 Negatives

Salesforce's earnings contains four positive read-outs, Lenschow said. These include:

  • A billings beat of 7.6 percent despite foreign exchange headwinds.
  • RPO grew 34 percent to $21 billion.
  • Full year revenue guidance was lifted by more than the third quarter beat.
  • MuleSoft is outperforming and contributed to the lifted guidance.

On the other hand, two negatives include:

  • Fourth quarter unearned revenue guidance implies 15 percent billings growth year-over-year, which is short of the consensus estimate of 23 percent.
  • Sales and Service Clouds growth decelerated from the second quarter.

Jefferies: Encouraging Commentary

Salesforce CEO Marc Benioff said on the conference call the global demand environment remains strong and management sees solid growth ahead, DiFucci said. Meanwhile, CEOs in Europe appear to be taking a conservative and less optimistic approach compared to the U.S. and Asia but this is "nothing to be alarmed over" given the recent strength in the EMEA region in recent quarters.

Canaccord: Upside To Guidance

Davis said Salesforce's fiscal 2020 revenue guidance of $15.9 billion to $16 billion appears to be conservative when factoring in the company's Current Remaining Performance Obligation, which was up 27 percent and now accounts for 70 percent of Canaccord's forecast for the coming fiscal year versus 68 percent this time last year.

Tigress: Momentum Remains Strong

Salesforce's ongoing momentum was evident in the third quarter from its strategic investments and new client wins, Feinseth wrote. In fact, the company continues to see strong growth across all business lines, especially Sales Cloud and Marketing and Commerce Cloud.

Related Link: Wall Street Reacts After Salesforce Q2 Beat: 'Hard To Shake A Stick At'

KeyBanc: Core Growth Stock

The stock remains a core growth holding, Bracelin said. The company is among the top cloud platforms and comes at a time when cloud adoptions is going "mainstream in the enterprise."

BMO: 3 Key Metrics

Salesforce's guidance is highlighted by four metric beats, Bachman said. These include:

  • Billings was 7.5 percent better than expected.
  • Billings guidance for the January quarter implies 15 to 16 percent growth year-over-year.
  • Management lifted revenue expectations for the January quarter by 1 percent despite foreign exchange woes.

Raymond James: Valuation Revision Needed

Despite reporting a "far better" than expected earnings print, a downward revision to Salesforce's trading multiple is warranted due to compression in the overall software sector, Peterson said. The analyst's new $165 price target is based on 8 times fiscal 2020 revenue estimates, which is multiple that's consistent for secular technology leaders and also implies a one time premium to SaaS companies growing at 20 to 30 percent.

Wedbush: Typical Beat

Salesforce reported a "pretty typical beat" although RPO and total bookings decelerated modestly, Koenig said. It's likely that salesforce's pending "monster deals" are due to close in the fourth quarter. As such, the sentiment surrounding salesforce's stock improved and could help support the broader growth software space.

Oppenheimer: Supports Bullish Stance

Salesforce's third quarter supports a bullish stance on the stock based on its customer engagement opportunity, Schwartz said. Specifically, modernizing for customer engagement will remain a top software spending priority next year which bodes particularly well for salesforce.

Photo courtesy of Salesforce.

Latest Ratings for CRM

DateFirmActionFromTo
Mar 2019Initiates Coverage OnOutperform
Mar 2019Initiates Coverage OnBuy
Mar 2019MaintainsBuyBuy

View More Analyst Ratings for CRM
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings News Guidance Price Target Top Stories Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (CRM)

View Comments and Join the Discussion!

"The Black Experience In Cannabis" Event Hosted By The Congressional Black Caucus Foundation

Mid-Morning Market Update: Markets Open Higher; Dicks Sporting Goods Profit Beats Estimates