Analyst Explains Why It Favors Salesforce, Smartsheet Versus Workday, Zoom, DocuSign, Asana

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  • Morgan Stanley analysts Keith Weiss and Josh Baer highlighted that SaaS valuations rebounded in recent months, with the average SaaS stock up 22% over the last three months (though still down ~34% YTD). 
  • The team thinks that companies demonstrate stable execution and highlight only isolated demand impacts, emphasizing margins and focusing on efficiency (protect FCF). 
  • At the same time, de-risking forward guidance stands the best chance for outperformance in Q2 results. 
  • With this backdrop in mind, the team favors the risk/reward at Salesforce, Inc CRM (OverWeight, $273 price target), with low investor growth expectations and little appreciation for the margin improvement story, and an underappreciated valuation. 
  • On the positive side, the team also likes Smartsheet Inc SMAR (OverWeight, $68 price target) at a ~50% discount to SaaS peers signifying a significant discount for a company inflecting FCF to positive this year, already embedding macro prudence in FY23 guidance. 
  • Tactically, the team sees a more challenging setup for Workday, Inc WDAY (OverWeight, $282 price target), which is a likely candidate for longer-sales cycles / slipped deals and still needs to de-risk H2.
  • The team acknowledged Zoom Video Communications, Inc ZM (OverWeight, $140 price target) with conservative margins overshadowed by topline concerns.
  • The team also mentioned DocuSign, Inc DOCU (EqualWeight, $73 price target), which lacks visibility into growth, and Asana, Inc ASAN (EqualWeight, $35 price target), which is operating at a negative 'Rule of 40'. 
  • Price Action: CRM shares traded lower by 0.63% at $189.82 on the last check Tuesday.
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