Salesforce Poised For Continued Growth, Despite Forex Headwinds And AI Development Delays, Says Analyst

Zinger Key Points
  • Wells Fargo lowers Salesforce price target to $300, citing mixed business trends and FX headwinds in Q1 fiscal 2025.
  • Oppenheimer maintains Outperform rating on Salesforce, expecting durable margin improvement and EPS growth despite challenges.

Wells Fargo analyst Michael Turrin maintained Salesforce Inc CRM with an Equal-Weight and lowered the price target from $310 to $300.

Oppenheimer analyst Brian Schwartz reiterated an Outperform rating on Salesforce with a price target of $325.

Schwartz’s earnings preview research mosaic points to mixed business trends and negative FX headwinds in the first quarter of fiscal 2025, which foretell little change to estimates and fundamentals but durable margin improvement and EPS growth that support valuation multiples. 

Also Read: Salesforce’s AI Innovations, Partner Network Expansion Impress Analyst

The analyst’s field checks were mixed for Salesforce’s business momentum and engagement levels during the first quarter, which likely reflects seasonality and back-office software continuing as the priority investment in enterprise IT budgets. Positively, enterprise IT budgets are more significant this year, which should support price increases and achieve first-quarter consensus estimates, as he said that Salesforce remains a vendor consolidator and strategic supplier to enterprise organizations.

Positively, expectations are low ahead of the print. The analyst said Salesforce’s pricing, platform business, and Data Cloud appear intact this year, which will provide good growth drivers. 

Salesforce’s product monetization remains early in its evolution, with customers and most organizations adopting freemium versions in the piloting phases. Schwartz noted that several planned AI products for Salesforce are still broadly in development. His checks suggest there is healthy interest from Salesforce’s installed base for its AI products, but pricing transparency, low referenceability, and product availability are holding back more software budgets being allocated to AI.

Negatively, the story has become noisier recently, with management showing prudence by not overpaying for Informatica. However, the attempt exposed a weakness in its Data Management solutions that may require inorganic R&D to solve, he stated. 

As per the analyst, this development feeds a bear case on a lack of innovation and sidelines investors with near-term large-company M&A risks.

Schwartz estimates first-quarter revenue of ~$9.15 billion and adjusted EPS of $2.37.

Stifel analyst J. Parker Lane reiterated a Buy rating on Salesforce with a price target of $350.

Lane recently spoke with six Salesforce partners to understand first-quarter performance and 2024 expectations. Not surprisingly, partners noted a continuation of the challenging business environment but expressed confidence that the full year would play out similarly to what they believed at the start of the year.

In line with partner commentary about a month ago and found in Lane’s Data Cloud & Einstein mini primer here, Salesforce has continued to push Data Cloud to as many customers as possible at renewal to prepare customers for Einstein implementations and capture consumption spend. Partners are beginning to see Einstein hype turn to dollars from early adopters, but it is likely still immaterial to first-quarter results. Lane’s confidence in Data Cloud’s ability to drive sustainable growth continues to build.

Salesforce stock gained over 34% in the last 12 months. Investors can gain exposure to the stock via REX FANG & Innovation Equity Premium Income ETF FEPI and Fidelity Disruptive Technology ETF FDTX.

Price Actions: CRM shares traded lower by 2.04% at $278.04 at the last check Thursday. 

Also Read: Salesforce Pushes for Transparency in AI Emissions Reporting

Photo via Shutterstock

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